COMPANIES (AMENDMENT) ORDINANCE, 2018

Introduction:

The President of India had on 2 November 2018 promulgated The Companies (Amendment) Ordinance, 2018 (Amendment) thereby amending some of the sections of the Companies Act, 2013 (Act).The Amendment addresses adjudication of penalties, corporate governance, de-clogging the National Company Law Tribunal (NCLT) and registration of charges. This update briefly summarises the provisions of the Amendment.

Important Amendments:

1. Prescribing rigid penalties in case of repeated defaults: In case a company or officer of a company or any other person having already been subjected to penalty for default, repeats the same default within a period of 3 years from the date of the order imposing such penalty, it or he shall be liable for the second and every subsequent defaults for an amount equal to twice the amount provided for such default under the relevant provisions of the Act.
   
   
2. Transfer of powers of NCLT to other regulatory authorities: It appears that with the dissolution of Company Law Board and constitution of NCLT, the matters filed before the NCLT have increased tremendously and thus the following powers exercised by NCLT under the Act have been shifted to other regulatory authorities:
   • Power to approve change in financial year: The power vested with the NCLT to approve the change of financial year from April –March for company or body corporate which is a holding company or a subsidiary or associate company of a company incorporated outside India has been transferred to the Central Government.
     
     
   • Conversion of Public Companies into Private Companies: The power vested with the NCLT to approve the conversion of Public Companies into Private Companies has been transferred to the Central Government.
     

3. Declaration by director: The director of the company having share capital is now required to file a declaration that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of the declaration within 180 days of the incorporation before it commences its business or exercises borrowing power. Non-compliance would lead to the invocation of the penalty clause.
4. Registered Office: If the registrar has a reasonable cause to believe that the company is not carrying on any business or operations, he may cause a physical verification of the registered office and in case of any default, initiate action for removal of the name of the company.
5. Compounding of certain offences: Post amendment, the power of Regional Director to compound offences has been increased to Rs 25 lacs from the previous power of Rs 5 lacs. The provision requiring permission of the Special Court for compounding certain offences which are punishable with imprisonment or with fine has been removed.
6. Replacement of fine with penalty: There has been a re-categorization of the failure to comply with the following provisions by shifting them from the jurisdiction of Special Courts to an in-house e-adjudication framework wherein defaults would be subject to levy of penalty by the Registrar of Companies instead of fine:
   • Prohibition of Issue of shares at discount - Penalty equivalent to amount raised through issue of shares at discount or INR 5,00,000/- (Rupees Five Lac only) whichever is less. The Company shall also be liable to refund all monies received with interest @ 12 % per annum;
     
     
   • Notice to be given to Registrar for alteration of share capital;
     
     
   • Failure or delay in filing of Annual Return. Also the punishment of imprisonment has been omitted.
     
     
   • Explanatory Statement.
     
     
   • Default in providing a declaration with regard to appointment of proxy in a notice calling for general meeting.
     
     
   • Failure/Delay in filing certain resolutions.
     
     
   • Annual Report
     
     
   • Failure/Delay in filing of financial statements. Also, the punishment of imprisonment has been omitted.
     
     
   • Contraventions relating to DIN. Also, the punishment of imprisonment has been omitted.
     
     
   • Accepting directorships beyond specified limits.
     
     
   • Appointment of Key Managerial Personnel.

8. Punishment for Fraud: The amount of fine has been increased to INR 50,00,000/- (Rupees Fifty Lac only) from INR 25,00,000/- (Rupees Twenty Five Lac only)
9. Registration of Charges: With the new amendment, for charges created prior to the commencement of Companies (Amendment) Ordinance, 2018, the registrar may allow 300 (three hundred) days and for charges created after the commencement of Companies (Amendment) Ordinance, 2018 the registrar may allow 60 (sixty) days.
10. Ensuring compliance of the default: The adjudicating officer in addition to the exercise of power of imposing penalties is empowered to direct the company and officer in default to rectify the default stating the non-compliance or default under the relevant provisions of the Act.
11. Disqualification of appointment of directors: A person shall be subject to disqualifications if he exceeds the maximum number of directorships mentioned under the Act.
12. Stock Options: The provisions of the Act which did not entitle independent directors to stock options has been omitted. Further, it stated that they may receive sitting fees, commission, and reimbursement of expenses.
13. Register of significant beneficial owners in a company: In case of failure to make disclosures under Section 90 of the Act, it was only punishable with fine. The punishment has been made more stringent by making contravention punishable with fine or imprisonment or both instead of fine only.

MHCO COMMENT: The Amendment addresses the issues of non-compliance of the provisions of the Act by revising penal provisions as recommended by the Injeti Srinivas Committee. The penalties have been relaxed thereby granting relief to companies. Attempts have also been made to ease the burden on the NCLT by increasing the monetary limits for punishments that may be adjudicated by the Registrar of Companies and shifting certain powers to the Central Government.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance. 

UNSIGNED ARBITRATION AGREEMENT IS NOT INVALID IN ALL CIRCUMSTANCES

INTRODUCTION

The Supreme Court of India has very recently in the case of Caravel Shipping Service Private Limited versus Premier Sea Foods Exim Private Limited held that an unsigned arbitration agreement would not be invalid in all cases. The only pre-requisite is that it has to be in writing, as set out in Section 7(3) of the Arbitration Act, 1996 (Act). Further, the aforesaid judgment held that the stage of the suit would not come in the way of an application filed under Section 8(3) of the Act to refer parties to arbitration when the issue is pending before the judicial authority, provided said application under Section 8(3) of the Act was filed in the same year as that of the suit.

FACTS OF THE CASE

The dispute arose out of a Bill of Lading (Bill) between Caravel Shipping Service Private Limited (Appellant) and Premier Sea Foods Exim Private Limited (Respondent) who was the merchant according to the Bill. A suit was filed by the Respondent before the Sub-Judge’s Court in Kochi to recover the sum of Rs. 26,53,593/- from the Appellant. The pleadings expressly stated that the Bill was to be a part of the cause of action in the aforesaid suit.

Subsequently, the Appellant filed an interim application under Section 8 of the Act to refer the matter to arbitration. It was brought to the Hon’ble Court’s notice that the arbitration clause was included in the printed terms annexed to the aforesaid Bill. Furthermore, the interim application also stated that a petition under Section 11 of the Act to appoint an arbitrator in accordance with clause 25 of the aforesaid Bill had been filed in Chennai. The Sub-judge dismissed the application on the ground that the printed condition annexed to the Bill would not be binding upon the parties.

A writ was filed under Article 227 before the Kerala High Court which was dismissed by judgment dated 14 June 2016 inter alia on the grounds that the arbitration clause did not reflect an intention to arbitrate and further, there was nothing to show that the aforesaid clause 25 was brought to the notice of the Respondent. The Appellants filed a review petition against this judgment which was dismissed by the Kerala High Court. The Appellant then approached the Supreme Court.

RATIO DECIDENDI

The Supreme Court referred to the Bill and held that the aforesaid Bill stipulated that the Merchant, the present Respondent, agreed to be bound by the terms, conditions, clauses and exceptions on both sides of the Bill.

The Bench observed that since the Respondent had themselves relied upon the Bill as a part of its cause of action in the suit filed by them before Sub-Judge’s Court in Kochi, they cannot at a later stage take a contradictory stance.

The Court referred to Jugal Kishore Rameshwardas v. Mrs Goolbai Hormusji (AIR 1995 SC 812) which held that an arbitration agreement needs to be in writing though it need not be signed. The Supreme Court concurred with this view.

The Apex Court stipulated that since the Respondent relied on the Bill in his suit to recover monies from the Appellant, he was expressly bound by the arbitration clause even if the arbitration clause is annexed to the Bill in printed condition. The Respondent cannot make a subsequent argument that because the arbitration clause is annexed to the Bill in printed condition, the parties are not bound by it.

The Bench also observed that the stage of the suit would not come in the way of an application filed under Section 8(3) of the Act in as much as the said Section 8(3) application is filed in the same year as that of the suit.

MHCO Comment: Pursuant to this judgment, it would be advisable for parties to a contract who do not wish to arbitrate to ensure that the terms and conditions of the contract do not include an arbitration clause. If an arbitration clause is present in the printed but unsigned conditions of an agreement, the matter may still be referred to arbitration even if the parties have not signed the conditions.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.