In this post we discuss the addition of Section 454A to the Companies Act, 2013 ("Act") by the Companies (Amendment) Act, 2019 ("Amendment") and its impact on the operations of companies in India.
Section 454A: Penalty for repeated default
A fresh Section 454A has been introduced to the Act by way of the Amendment. This section states that if a company or an officer of a company or any other person who has been subjected to a penalty for default under the Companies Act, 2013, commits a subsequent default within three years from the date of order imposing the penalty, then such subsequent defaults shall be liable with a penalty amount equal to twice the amount of penalty provided for such default under the relevant provisions of the Act.
The addition of this Section 454A is expected to be a strong deterrent, in order to curb repetition of offences.
CONCLUSION
While the ongoing theme of most of the changes brought into the Companies Act regime in the last few years have been with a view of promoting "ease of business", the current Amendment seems to be more about bringing in a stricter enforcement mechanism, and requiring stronger compliance. Borrowing from this perspective, some of the changes also appear to be with a view to bringing in more transparency on the internal governance mechanism of even private companies. How the companies and the other relevant parties react to and adjust to such amendments and the practical implications thereof is yet to be seen. Having said that, if there is anything that the evolution of the Act in the last 6 years has taught the entities it seeks to govern is that there is never a dull moment in the company law regime, which seems to be a constant work-in-progress.
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