A Jump to Relax Special Courts


The government of India promulgated a temporary law called the Companies (Amendment) ordinance 2018 on 2nd November 2018 to by parachute landing of few more reform measure. Constitution of India mandate that Government needs to get it approved by Parliament within 6 months. However, the companies (Amendment) Ordinance, 2018 has nothing which may require urgent attention unless government going to launch large-scale prosecutions against corporates. Moreover, soon after this ordinance government issued a consultation paper for further urgent reforms.

Readers may read this post as a law applicable with effect from 2nd November 2018 till passing law by the Parliament. In this post we will discuss minor changes related to relaxing burden of special courts.

From Fine to Penalty

Majority of these amendments are related to change of nature of punishment from fine to penalty. Though these terms may be used interchangeably:

  1. Fine is used in criminal law and determined by a court and is a monetary punishment.
  2. The penalty is prominently used in civil offences and may be determined by quasi-judicial or executive authorities. It is a monetary punishment but may also be a physical form of punishment.

In the Companies Act, 2013 fine is determined by a judicial authority while penalty by executive authority – the adjudicating officer.

We will discuss new provision where law shifted from fine to penalty and related changes therein.

Prohibition on issue of shares on discount {Section 53(3)}

The Punishment under this subsection shifted from fine to penalty.

Earlier provision talks about contravention while the amendment talks about failure to comply with the provision of Section 53.

The provision of a minimum penal amount for companies and imprisonment for officers in default is removed.

Increased Governance: The Company shall be liable to refund all monies received with interest at the rate of 12% per annum from the date of issue of shares.

Increased confusion: Such refund of monies shall be made to the person to whom such shares have been issued. What about nominee and transferee in case of death or transfer.

Notice to be given to Registrar for alteration of share capital {Section 64(2)}

The Punishment under this sub – section shifted from fine to penalty.

Earlier provision talks about contravention while the amendment talks about failure to comply with the provision of Section 64.

There is no change in the penal amount other than shifting from fine to penalty.

Annual Return {Section 92(5)}

The Punishment under this sub – section shifted from fine to penalty.

Provision for imprisonment for officers in defaults has been removed.

Calculation clarity – continuing offence: Now there will be a further penalty of one hundred rupees for each day during which such failure continues.

Statement to be annexed to the notice {Section 102(5)}

The Punishment under this sub – section shifted from fine to penalty.

The provision of sub-section (5) is now without prejudice to the provisions of sub-section (4).

Proxies {Section 105(3)}

The Punishment under this sub – section shifted from fine to penalty.

Resolution and Agreements to be filed {Section 117(2)}

The Punishment under this sub – section shifted from fine to penalty.

The minimum and maximum penal amount are same for the company and officers in default.

Calculation clarity – continuing offence: Now there will be a further penalty of five hundred rupees for each day during which such failure continues on the company and the officer in default, however within the maximum limit of penal amount.

Report on Annual General Meeting {Section 121(3)}

The Punishment under this sub – section shifted from fine to penalty.

The minimum and maximum penal amount remain the same for the company and officers in default.

Calculation clarity – continuing offence: Now there will be a further penalty of five hundred rupees for each day during which such failure continues on the company and the officer in default, however within the maximum limit of penal amount.

Copy of Financial Statement to be file with Registrar {Section 137(3)}

The Punishment under this sub – section shifted from fine to penalty.

Provision for imprisonment for officers in defaults has been removed.

The minimum and maximum penal amount are same for the company and officers in default.

Calculation clarity – continuing offence: Now there will be a further penalty of one hundred rupees for each day during which such failure continues on the Managing Director and Chief Financial Officer, however within the maximum limit of penal amount.

Removal, Resignation of Auditor and Giving of Special Notice {Section 140(3)}

The Punishment under this sub – section shifted from fine to penalty.

Provision for imprisonment for officers in defaults has been removed.

Calculation clarity – continuing offence: Now there will be a further penalty of five hundred rupees for each day during which such failure continues on the resigning Auditor.

Company to inform Director Identification number to Registrar {Section 157(2)}

The Punishment under this sub – section shifted from fine to penalty.

The minimum and maximum penal amount is remaining same for the company and officers in default.

Calculation clarity – continuing offence: Now there will be a further penalty of one hundred rupees for each day during which such failure continues on the company and the officer in default, , however within the maximum limit of penal amount.

Punishment for Contravention {Section 159}

The Punishment under this sub – section shifted from fine to penalty.

Earlier provision talks about contravention while the amendment talks about default in complying with the provisions.

Provision for imprisonment for such individual and directors has been removed.

Number of Directorship {Section 165(6)}

Amount of fine is fixed to five thousand rupees per day during the period of default.

Payment to Director for Loss of Office, etc., in Connection with Transfer of Undertaking, Property or Shares {Section 191(5)}

The Punishment under this sub – section shifted from fine to penalty.

The penal amount for the same is fixed to one lakh rupees without any discretion.

Overall managerial Remuneration {Section 197(15)}

The Punishment under this sub – section shifted from fine to penalty.

Earlier provision talks about contravention while the amendment talks about default in complying with the provisions.

In case of individual the penal amount is now fixed to one lakh rupees.

Hardship: The penalty in case of default by the company is introduced and fixed to five lakh rupees.

Appointment of Key Managerial Personnel {Section 203(5)}

The Punishment under this sub – section shifted from fine to penalty.

Earlier provision talks about contravention while the amendment talks about default in complying with the provisions.

In case of directors and key managerial personnel, the maximum amount is capped to five lakh rupees which were not earlier capped.

Hardship: There is no minimum penal amount now and the penalty is fixed higher side of five lakh rupees in case of companies, however within the maximum limit of penal amount.

Registration of offer of schemes involving Transfer of Shares {Section 238(3)}

This is the fixation of the penal amount to moderate one lakh instead of the present maximum amount of five lakh rupees.

Lesser penalties for One Person Companies or Small companies {Section 446B}

In this Section, the term fine was already. Present amendment is in line with all abovementioned amendment and removes the provision of imprisonment in the case of individuals.

Closing remark

The government tried best to reduce discretionary powers of the adjudicating officer as far as amount is the concern. There was a general allegation of rampant corruption which forced government earlier to shift all these powers to the special court and burdening courts with a lot of company cases. It seems government tried it to make mechanical, transparent and predictable process. However, there is no justification to choose ordinance when the next session of parliament is not far away.

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