Key takeaways from the Companies Amendment Act, 2019

The Ministry of Corporate Affairs (“MCA”) notified the Companies Amendment Act, 2019 (“Amendment Act”). The Amendment Act aims to curb ‘shell companies’ and to bring forth a framework to deal with management personnel of a company who are ‘unfit and improper’. Some of the key highlights of the Amendment Act are –

  • Controlling Shell Companies –

Companied need to file declaration for subscribing to the Memorandum of Association– This amendment to the Companies Act, 2013 (“Act”) now makes it compulsory for new companies to make a declaration that every subscriber to the memorandum of association of the company has made a payment towards the value of shares subscribed by him/her on the date of such declaration. This declaration has to be filed with the Registrar of Companies (“RoC”) within 180 days of the date of its incorporation.

The consequence of not filing such declaration is the removal of the company by  the register of companies after receipt of notice from the RoC after following the procedure set out.

  • Dealing with persons “unfit and improper” to manage companies –

The Amendment Act amends Section 241 of the Act whereby, any member of a company and the Central Government to make an application to the National Company Law Tribunal (“NCLT”) for relief in a case of oppression and mismanagement.

The amendment to this section will allow the Central Government to approach the NCLT against the persons involved in the conduct and management of a company on the following grounds –

  1. If such person is guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions;
  2. when principles or prudent commercial practices have not been followed for running of the business of the company by such persons;
  3. where a serious injury or damage could be caused to the interest of the trade, industry or business to which such company pertains if it is conducted and managed by such person.
  4. In case the business of the company has been conducted and managed by such person for a fraudulent or unlawful purpose or in a manner prejudicial to public interest or with the intent to defraud its creditors, members or any other person.

It will be for the NCLT to decide whether any such person is fit to continue to manage the conduct and affairs of such company. Further, if any person is deemed to be not fit and proper by the NCLT shall not be allowed to hold any such position for a period of five years from the date of the decision of the NCLT.

  • In the event the Registrar of Companies (“RoC’) believes that the company is not carrying out any business or operation, in such a case, the RoC can carry out a physical verification to verify if the company in question is carrying on business.
  • All companies, including a private limited company may be required to issue shares only in a dematerialized form, if the same has been prescribed by the Ministry of Corporate Affairs.
  • In the event the company alters its share capital and does not give notice to the RoC within 30 days of the same, the company and each of its officers shall be liable to a penalty of ₹1,000 per day or a fine of ₹5,00,000, whichever is lesser.
  • The Amendment Act has increased the penalty of not filing annual returns to ₹50,000 if it is a continuing offence, with a further penalty of ₹100 for every day of default, subject to a cap of ₹5,00,000/-


Quick View:

The Amendment Act has given wide powers to the Central Government with respect to the persons involved in the management and affairs of a company, for example, such personnel will have to follow “sound business principles or prudent commercial practices”, such terms are open to interpretation, making it easier for the Central Government to initiate proceedings against a company. Managerial personnel of a company will now have to take utmost care and caution while managing the affairs of a company. This will go a long in improving corporate governance in India.

Karnataka temple employees not entitled to claim gratuity: Karnataka HC

The Karnataka High Court (“Karnataka HC”) in the case of Shri Mookambika Temple, Kollur v. Raviraja Shetty and Ors. decided that an employee working in a temple in the state of Karnataka is not entitled to receive gratuity.

Gratuity is governed by the Payment of Gratuity Act, 1972 (“Act”).  The Act is applicable to all “establishments” governing ten or more persons, the word “establishment” is defined under the Karnataka Shops and Commercial Establishments Act, 1961 (“Karnataka Shops Act”).

The Court has held that a temple does not fall under the definition of establishment under the Karnataka Shops Act, since it is a place of public religious worship. Also, temples have not been notified by the State Government to be subject to the Karnataka Shops Act. Further holding that Karnataka Hindu Religious Institutions and Charitable Endowment Act, 1997 is the governing law for temple employees in Karnataka

Quick View:

In our opinion the Karnataka HC has correctly ruled that the definition of establishment under the Karnataka Shops Act is exhaustive in nature, and that respect must be paid to state legislation for payment of gratuity. This judgment has set aside an earlier judgment passed by the Karnataka HC (Management of Venkataramana Swamy Temple v. Deputy Labour Commissioner) in which it held that temple employees shall be entitled to receive gratuity relying on an Orissa High Court Judgment which was based on Odisha state legislation, holding this judgment to be erroneous in nature.

Copyright Infringement – Defendants to be allowed to know the copyright to defend themselves: Delhi HC

The Delhi High Court in Transformative Learning Solutions Private Limited v. Pawajot Kaur Baweja and others held that the defendants in an application for grant of permanent injunction to use a copyright must be given a chance to look at the copyright in question in order to provide them an opportunity to defend themselves.

In the instant case, the defendants were ex-employees of the plaintiff, they had started a new business after terminating their employment with the plaintiffs. The Delhi HC had passed an interim order against the defendants, restricting them from using any confidential information of the plaintiffs, with reference to such confidential information contained in a pen drive filed before the Court, containing a list of customers of the plaintiffs, on which they also claimed to have a copyright. The plaintiffs sought permanent injunction against the defendants for using such confidential information by way of a commercial suit.

The Court ordered that the plaintiffs sought a vague inunction order which is contrary to law. That in cases pertaining to patents, the requirement of confidentiality can be decided by an expert, but the same could not be done in the facts of the instant case.  Also, that the defendants can only defend such suit if they know what copyright they have allegedly infringed, they should also be allowed a chance to raise an objection over the existence of copyright of the plaintiffs.

Quick View:

In our opinion the Delhi High Court has set the right precedent not allowing a party to obtain a vague degree for its vested interest. This case decides the question of confidentiality of information against the right of the defendants to defend themselves. The present suit was filed under the Commercial Courts Act, 2015 and thus the defendants were given a chance to question whether such suit was arising out of intellectual property or not.

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Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.



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