Company Registration

Companies Amendment Act, 2020 – Key Features

Companies Amendment Act

The Companies Act of India, 2013 (CA 2013) was brought out to improve the compliance perspective of Indian Companies. Before the CA 2013, the law that regulated companies in India was the Companies Act, 1956.

To improve the amount of transparency, governance, and compliance requirements, the government, along with the Ministry of Corporate Affairs (MCA) brought out the CA 2013. Some new amendments brought out under the CA 2013, were an increased amount of transparency and flexibility. The CA 2013 has been amended several times through the Companies Amendment Act.

This law is the primary legislation that affects the status of companies. Over the years since its passage, the CA 2013 has been amended several times. This amendment was brought out as the Companies Amendment Act. Apart from this, there are also separate legislative amendments that govern the name of companies, corporate social responsibility, and other requirements under Companies Law.

Amendments in the Companies Act, 2013

Subsequently, after its introduction, the CA 2013 has been amended several times. This amendment was through the Companies Amendment Act in 2015, 2017, and 2019.

Out of all these amendments, the 2017 amendment was the broadest amendment. Now the companies’ act 2013 has undergone another form of the amendment, and this is called as the Companies Amendment Act 2020. Till now the CA 2013 has been amended several times.

This write up will analyse the amendments carried out by the Companies Amendment Act 2020. This act was approved and passed by the parliament after which it received presidential assent on 28 September 2020. These amendments were carried out after a comprehensive understanding of the report made by the CLC (Company Law Committee).

Main Motives of Carrying out the Companies Amendment Act 2020

  • One of the primary motives for the government to bring out this amendment was to increase the ease of doing business in the country.
  •  The Ministry of Corporate Affairs[1] set up the CLCs, and one of the main motives was to decriminalise different form of offences under the Companies Act 2013.
  • Through this consultation and recommendation, the committee wanted to decriminalise more than 46 offences under the Companies Act 2013.
  • Previously in the 2019 amendment, 16 offences under the Companies Act 2013 was already decriminalised.
  • Apart from these, the amendment specifically focussed on the requirement of Independent Directors. Under this amendment, there were several recommendations that independent directors receive more remuneration due to the number of responsibilities they undertake.
  • Due to this amendment, the amount of remuneration received by independent directors would be determined as per schedule V of the act. However, the amount of remuneration fixed under the act would not be indefinite.
  • This amendment would also permit Indian companies to list their securities in foreign stock exchanges. Through this amendment, both listed and unlisted companies would secure the benefits of listing their securities in an overseas stock exchange. Before, this procedure for listing securities in international stock exchanges was time-consuming.
  • Apart from this, the Companies Amendment Act has also brought out a new provision dealing with producer companies. This was omitted during the introduction of the Companies Act 2013. However, previously this provision was present under the Companies Act 1956.
  • Under the Companies Amendment Act, the requirement for having producer companies would be present under a special amendment act under a special provision.
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Primary Amendments brought out as a result of the Companies Amendment Act

  • Primary Offences Decriminalised- Many offences under the Companies Act 2013 have been decriminalised as a result of the amendment. Some of the offences which are decriminalised deal with the defaults for compliance. Plus if the elements of conspiracy or fraud are not present in a particular offence, then the same will not be considered as a major offence. The public interest factor is present; then the offence would be considered a serious offence.

The Companies Amendment Act of 2020 has removed the following offences:

  • Criminal Offences- Certain offences such as non-compliance with a particular law which is dealt with by the National Company Law Tribunal (NCLT) have been omitted by the Companies Amendment Act 2020. These offences would deal with winding up of companies, amendment of registers of the company and dealing with the redemption of debentures.
  • Removal of Imprisonment- Several offences under the Companies Amendment Act 2020 have been declassified by removal of prison term. These offences under the Companies Amendment Act have removed prison term period and made penalties under civil law. These penalties have been changed to civil penalties which is
  • Change of Fine related to the offences-The quantity of fine on a monetary penalty has also been reduced as a result of the amendment act. Monetary criminal penalties have been reclassified into civil penalties under this act. This will be the case if there is non-compliance by a particular authority.
  • Decriminalisation of criminal laws related to companies has been invoked since the past. Ever since economic liberalisation, some offences have been removed from the list of offences under the Companies Act, 1956. For example, one of the first laws that were decriminalised was the Imports and Exports (Control) Act, 1947. This law was subsequently replaced by the Foreign Trade (Development and Regulation) Act, 1992.
  • The above the law decriminalised most offences dealing with foreign exchange transactions within the country.
  • Another effort for decriminalisation was the revocation and removal of the Foreign Exchange Regulation Act (1973). This act was repealed and replaced by the Foreign Exchange Management Act, 1999. There were harsh and stringent penalties under the Foreign Exchange Regulation Act which was repealed by the FEMA.
  • Amendment related to Debt Listed Company- The requirement of a company to be listed in the stock exchange was present under the Companies Act, 2013. Debt securities that are listed in a stock exchange would be related to compliance. However, this requirement was not considered under the present amendment.
  • Listing of Overseas Companies- Listing of overseas companies was allowed under the Companies Act, 2013. However, with the main intention of ease of doing business inside and outside India, the government has made it easier for domestic companies to list their securities in international stock exchanges. Before this amendment was considered, Indian companies could only list their securities in foreign stock exchanges and foreign equity markets by issuing Global Depository Receipts (GDR) and American Depository Receipts (ADR). Under section 23 of the Companies Amendment Act, public companies are allowed to list their securities in international stock exchanges. As per the regulations, different classes of securities can be listed in the stock exchange. These listing of securities are carried out in compliance with the requirements of the listing agreement.
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Through the listing perspective, Indian companies can secure the following:

  • Increase in competition related to their securities;
  • Any form of the broader investor base;
  • Increase in the access to capital of securities; and
  • More chances of valuations.
  • These amendments would also make pursuant changes to the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019. The above the law regulated the issue and listing of securities by an Indian company and a foreign company. Apart from this, the rules related to the Income Tax Act, 1961 would be changed regarding the taxability of foreign instruments under Indian jurisdiction. Apart from this, the provisions related to the listing of shares would affect other regulations such as the NSDL.
  • This would also affect other laws, such as the payment of stamp duty. For example, if a company has its shares listed in the New York Stock Exchange or the London Stock Exchange, then the legal or prominent jurisdiction for taxation of the shares would be in India as the shares are issued in India.
  • When it comes to payment of stamp duty, then the following would be considered. For shares which are registered internationally, the payment of stamp duty would be in accordance with the provisions of the Indian Stamp Act, 1899. For every form of transaction, there is some form of payment related to stamp duty. Under the Indian Stamp Act, 1899 section 9A would be amended as a result of the Companies Amendment Act. For this form of the situation of circumstance, the government has to provide a special exemption for such shares to claim some form of stamp duty.
  • The companies’ amendment act would also affect the accounting standards of foreign jurisdictions, like the IND As standards are completely different from the standards which are followed under the principles GAAP and International Standards. If there are some forms of inconsistencies in the accounting standards, then this would also be amended as a result of the Companies Amendment Act.

For the purposes of listing, it is important to understand the meaning of the following:

  • Listed Company- Under section 2(52) of the CA 2013, provides the meaning of a listed entity. As per the definition, ‘a listed company would include any form of entity that has its shares listed in a recognised stock exchange’. However, the intention of the listing company must be clear here.
  • Recognised Stock Exchange– Under section 2(73) of the CA 2013, provides the meaning of a recognised stock exchange as any exchange which complies with the provisions of the listing regulations for any company which is present in India. Also apart from this, a recognised stock exchange is an institution which is recognised by the Government of India and the respective Central Government.
  • The stock exchange will be recognised if the exchange is compliant with the provisions of different forms of listing regulations.
  • Hence if a company has its shares listed in a recognised stock exchange, then the provisions pertaining to listed shares on the stock exchange would be consistent as per the act and the securities contract regulation act. However, if the shares of a public company are present in an international stock exchange, then will the listing requirements be in accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015? This would have to be looked upon by the government to provide more clarity on the same issue.
  • Moreover, as a result of this amendment, the government would not expect the listed company to first list its shares in an Indian stock exchange and then subsequently list shares in the foreign stock exchange. Such listing arrangements would also cause some form of conflicts in the listing agreements.
  • Rights Issue- One of the most significant amendments related to the act is the amendment for the rights issue. The time limit for rights issue has been considerably reduced. Previously under section 62 of the Companies Act, 2013, the rights issue would be kept open for a period of 15 days minimum. The number of days for the rights issue should not exceed 30 days from the offer date. If there is no form of response during that period, then the offer would be deemed to be rejected or declined. Now the Companies Amendment Act has reduced the period for the rights issue. As per the rules of the Central Government, the rights issue can be offered for a short period which would be lesser than 15 days. Through these companies that offer their shares through the rights issue process can significantly increase the amount of capital.
  • Significant Beneficial Owners- The requirement of the Significant Beneficial Owners has also been introduced as a result of the Companies Amendment Act. This provision was present in the 2017 Companies Amendment Act. As per this amendment, according to section 89, the requirement for a shareholder or a director under this act, to declare if there is any form of beneficial ownership. Under this provision, the companies require shareholders and directors to comply under the provisions of the law. This provision has made it clear that companies and individuals that have the status of significant beneficial owners have to comply with the requirements of the law.
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The Companies Amendment Act of 2020 has brought out several changes in the way companies operate. Firstly, this is the fourth amendment to the Companies Act 2013. Previous amendments were made in the year of 2015, 2017, and 2019. Out of the above amendments, 2017 was the most comprehensive amendment which affected all provisions related to the Companies Act. The 2020 amendment has decriminalised different crimes which do not have the substance of fraud. Apart from this, the amendment has made it easier for companies to list their shares in international stock exchanges. So to conclude, it can be said that the amendment act has improved the ease of doing business for Indian companies.

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