Sections 191, 197, 203, 212, 238 and 241: Companies Amendment Act 2019

The Companies (Amendment) Act, 2019 amended several provisions of the Companies Act, 2013 relating to directors, managerial remuneration, key managerial personnel, Serious Fraud Investigation Office investigations, schemes and arrangements, and proceedings concerning oppression and mismanagement. This article explains the amendments corresponding to sections 28 to 33 of the 2019 Amendment Act.

Legal context: The provisions below describe amendments enacted by the Companies (Amendment) Act, 2019. For compliance or proceedings, the current consolidated Companies Act, 2013 and applicable rules, notifications and commencement provisions should also be checked.

Section 191 - Payment to Director for Loss of Office

Section 191 of the Companies Act, 2013 regulates payments to a director for loss of office, or as consideration for retirement from office, in connection with specified transfers of an undertaking, property or shares. Section 28 of the Companies (Amendment) Act, 2019 substituted sub-section (5). A director who defaults in complying with section 191 is liable to a penalty of one lakh rupees.

Section 197 - Overall Maximum Managerial Remuneration

Section 197 governs overall maximum managerial remuneration and managerial remuneration where a company has no profits or inadequate profits, subject to the statutory framework. Section 29 of the 2019 Amendment Act omitted sub-section (7) and substituted sub-section (15). Under the substituted provision, a person who defaults is liable to a penalty of one lakh rupees; where the default is by a company, the company is liable to a penalty of five lakh rupees.

Section 203 - Appointment of Key Managerial Personnel

Section 203 deals with appointment of key managerial personnel in prescribed classes of companies. Section 30 of the 2019 Amendment Act substituted sub-section (5). A company in default is liable to a penalty of five lakh rupees. Every director and key managerial personnel who is in default is liable to a penalty of fifty thousand rupees and, for a continuing default, a further penalty of one thousand rupees for each day after the first, subject to a maximum of five lakh rupees.

Section 212 - Investigation by Serious Fraud Investigation Office

Section 212 provides the statutory framework for investigation into the affairs of a company by the Serious Fraud Investigation Office (SFIO). Section 31 of the 2019 Amendment Act made changes concerning the officer authorised to exercise arrest-related powers, references to the Special Court, and recovery of benefits obtained through fraud.

In sub-section (8), the reference was changed so that the relevant power may be exercised by an officer not below the rank of Assistant Director.
Sub-sections (9) and (10) were correspondingly amended in relation to post-arrest procedure and production before the Special Court or Judicial Magistrate, as applicable.
New sub-section (14A) enables the Central Government, where an SFIO report states that fraud has taken place and a person or entity has obtained an undue advantage or benefit, to apply to the Tribunal for appropriate disgorgement orders and for personal liability without limitation of liability.

Section 238 - Registration of Offer of Schemes Involving Transfer of Shares

Section 238 concerns registration of an offer of schemes or contracts involving transfer of shares. Section 32 of the 2019 Amendment Act amended sub-section (3), replacing the earlier fine provision with a penalty of one lakh rupees for the director who issues a circular that has not been presented for registration and registered as required by the section.

Section 241 - Application to Tribunal in Cases of Oppression and Mismanagement

Section 241 provides for applications to the National Company Law Tribunal in cases concerning oppression, mismanagement and prejudice to public interest. Section 33 of the 2019 Amendment Act expanded the provision.

A proviso to sub-section (2) provides for prescribed applications concerning specified companies or classes of companies to be made before the Principal Bench of the Tribunal.
Sub-section (3) permits the Central Government, where specified circumstances exist concerning fraud, misfeasance, persistent negligence, breach of trust, improper management, serious injury to trade or business, or fraudulent or unlawful conduct, to initiate a case and refer it to the Tribunal for a decision on whether the person is fit and proper to hold the office of director or another office connected with management.
Sub-section (4) requires the person against whom such a case is referred to be joined as a respondent.
Sub-section (5) prescribes the basic contents, signature and verification requirements for an application under sub-section (3).

Official Sources

For authoritative and updated statutory material, see the Companies (Amendment) Act, 2019 - Ministry of Corporate Affairs, the Companies Act, 2013 - Ministry of Corporate Affairs, and India Code.