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Lok Sabha passes bill to amend Companies Act; Sitharaman says 4 lakh companies de-registered

File photo. Photograph:( Reuters )

ANI New Delhi Jul 26, 2019, 10.58 PM (IST)

The Lok Sabha on Friday passed the Bill to amend the Companies Act 2013 with Finance Minister Nirmala Sitharaman saying that the government has de-registered nearly four lakh inactive companies.

The Companies (Amendment) Bill 2019 was passed by a voice vote after a reply by Sitharaman. The Bill seeks to replace an ordinance promulgated earlier this year.

"Nearly four lakh inactive companies have been de-registered by us," she said, adding they were totally inactive for several years, probably for more than five years.

Referring to members talking about shell companies, she said if a company does not have a proper registered office or if the business is not declared, then it become a shell company.

She said the non-maintenance of a registered office shall be made one of the stated grounds for striking off any company.

"So, physical registration of a registered company`s address has now become absolutely necessary so that you do not run the risk of being defined as a shell company," she said.

Referring to the Act enacted by the UPA government in 2013, Sitharaman said that she was not sure how it got passed as it has required repeated amendments.

Referring to queries about Corporate Social Responsibility, Sitharman said there is nothing under the rule, which stops the use of CSR fund for local requirements.

She said the companies that start spending money on CSR projects will be given one year plus three years.

"So, within three years, after the year in which the decision is taken, they have to give us a picture of where the money has been spent, i.e., 2 per cent of their total profit. In case it does not happen, they will have to move their money into an escrow account," she said, adding that it can go to the PM Relief Fund.

She said the Act has been amended twice earlier and the amendments being brought now were driven by demands of the stakeholders and also for the ease of doing business.

"The amendments are being brought for bringing a better governance framework and also to look at the welfare of small and medium enterprises. It will reduce the burden on them. (Some) compounding offences are being reduced to non-compounding offences so that those who have done small omissions or commissions of compliance will be treated with kid gloves," she said.

The minister said the government is looking at a Companies Act, which will be "far more friendlier for companies to comply" rather than them having to worry about its implementation.

The minister said that ordinance will lapse by the end of this month and there was a need to get the bill passed.

Responding to a query about including private companies under Section 164 of the Act, she said non-filing of financial statement or annual returns should result into some kind of disqualification for becoming directors in any company including private companies for relevant five years.

"This was done so that we bring in good corporate practices," she said.

Answering a query, she said the companies, which did not file annual returns and financial statements for two years or more, or did not apply for dormant status but existed without main activities, were the ones to get struck off by the Registrar after following due process.

Story highlights

The Companies (Amendment) Bill 2019 was passed by a voice vote after a reply by Sitharaman. The Bill seeks to replace an ordinance promulgated earlier this year