The Government of India introduced Companies Amendment Bill 2020 in Lok Sabha on 17th March 2020. Anurag Thakur, the Minister of State for Finance, introduced the bill in Lok Sabha to propose changes to the Companies Act, 2013. It proposes 72 changes from decriminalising various offences under the Act to allowing the direct overseas listing of Indian Companies. In this article, we shall throw light on the proposed amendments to the Act.
Initial Developments in the Companies Amendment Bill, 2020
Amendments to the Companies Act, 2013 appears to be a routine exercise for the government. The Act has now been amended numerous times. However, the objective of these amendments is different. The government had constituted the Company Law Committee (CLC) on 18th September 2019 with an objective to promote ease of living to the corporates. The committee has also intended to decriminalise some offences under the Act based on their gravity and to take other important measures to facilitate the ease of living for the corporates in the country. The CLC submitted its report in November 2019.
Based on the recommendations of the Company Law Committee and review by the government, the Companies Amendment Bill 2020 proposed changes to the Companies Act.
Objectives of the Companies Amendment Bill, 2020
Following are the objectives of the Companies Amendment Bill 2020:
- To decriminalise various provisions of the Act, based on their gravity.
- To decriminalise minor procedural lapse or technical lapse under the Act.
- To facilitate greater ease of living for law-abiding corporates.
- To promote ease of living to the corporate through various other amendments to the Act.
Decriminalisation of Offences under the Companies Amendment Bill 2020
In Company Law, there are numerous sections that lead to criminality and serious penalties of imprisonment. The Finance Minister had stated that the government would amend the Companies Act to remove the criminality clause on tax issues. The Finance Minister further said that the government does not want a law that would treat every business house with suspicion. Therefore the Companies Amendment Bill 2020 seeks to decriminalise certain offences under the Act, in case of defaults, which can be determined objectively and which lacks any element of fraud or doesn’t involve larger public interest.
The bill seeks to decriminalise minor procedural lapses or technical lapses into civil wrong. The bill, considering the pendency of the courts, proposes to adopt a principle-based approach to remove criminality in case of defaults. Out of the overall amendments proposed in the Companies Amendment Bill, approximately 45 amendments are related to the omission of penalties/imprisonment, the substitution of imprisonment with a penalty. Let’s look at few of those-
- Clause 3 of the Companies Amendment Bill 2020 proposes to amend subsection (11) of section 8 of the Companies Act to omit the punishment of imprisonment with respect to an officer who is in default for the offence specified therein.
- Clause 4 of the Bill intends to amend clause (b) of subsection (1) of section 16 of the Act to decrease the time limit of compliance to three months for the direction provided in the provision. It further proposes to substitute subsection 3 of the said section. It proposes to provide for allotment of a new name to the company by the central government in case there is a default in complying with the direction under subsection (1) instead of imposing punishment for non-compliance.
- Clause 6 of the Bill proposes to amend subsection 9 of section 26 of the Companies Act to omit the punishment of imprisonment with respect to every person who is a party to the issue of a prospectus in contravention of the said section.
- Clause 7 of the Bill proposes to amend subsection (5) of section 40 of the Act to remove the punishment of imprisonment in case of default in complying with the provisions of the said section.
- Clause 14 of the Bill intends to amend subsection (11) of section 68 of the Act to omit the punishment of imprisonment with respect to an officer of the company who has committed the offence specified therein.
- Clause 24 of the Bill intends to amend the sub section 6 of section 128 of the Act to omit the punishment of imprisonment with respect to an officer who has committed the offence specified therein.
- Clause 64 of the Bill intends to insert a provision in sub section (2) of section 452 of the Act specifying that the imprisonment of the officer or the employee of the company provided under the said sub section shall not be ordered in case of wrongful possession or with respect to the withholding of a dwelling unit is concerned.
The above-mentioned amendments are proposed in order to remove the punishment of imprisonment on certain offences to facilitate the ease of doing business in India. Apart from these, there are some other clauses of the bill that reduces the monetary penalties and commutes imprisonment of offences. For 11 kinds of offences, the provision of imprisonment shall be removed. It shall limit punishments to fines only. Six kinds of offences that had already been decriminalised will see a further reduction in the quantum of penalties.
Key Features of the Companies Amendment Bill, 2020
salient features of the Companies Amendment Bill, 2020 are specified below:
- The Bill empowers the Central Government to exclude, in consultation with the Securities and Exchange Board of India, a certain class of companies from the definition of “listed company”, especially for a listing of debt securities.
- The Bill clarifies the jurisdiction of the trial court on the basis of place of commission of an offence under section 452 of the Act for wrongful withholding of property of a company by its employees or officers.
- The Bill proposes to add a new Chapter XXI A in the Act relating to producer Companies, which was earlier part of the Companies Act, 1956.
- The Bill seeks to set up benches of the National Company Law Appellate Tribunal.
- The Bill intends to make provisions for permitting payment of adequate remuneration to non-executive directors in case of inadequacy of profits, by aligning it with the provisions for remuneration to executive directors in such cases.
- The Bill relaxes provisions relating to charging of higher additional fees for default on two or more occasions in submitting, registering, filing or recording any document, fact or information as provided in section 403.
- It extends the applicability of section 446B, with respect to lesser penalties for small companies and one-person companies, to all provisions of the Act which attract monetary penalties and also provide the same benefit to Producer Companies and start-ups.
- The Bill seeks to exempt any class of persons from complying with the requirements of section 89 related to the declaration of a beneficial interest in shares and exempt any class of foreign companies or companies incorporated outside India from the provisions of Chapter XXII relating to companies incorporated outside India.
- It also seeks to reduce timelines for applying for rights issues in order to speed up such issues under section 62.
- The Bill proposes to extend exemptions to certain classes of non-banking financial companies and housing finance companies from filing certain resolutions under section 117.
- The Bill provides that the companies which have Corporate Social Responsibility (CSR) spending obligation up to fifty lakh rupees shall not be required to constitute the Corporate Social Responsibility Committee and it allows eligible companies under section 135 to set off any amount spent in excess of their Corporate Social Responsibility spending obligation in a particular financial year towards such obligation in subsequent financial years.
- It also provides for a window within which penalties shall not be levied for delay in filing annual returns and financial statements in certain cases.
- The Bill proposes specified classes of unlisted companies to prepare and file their periodical financial results.
- The Bill seeks to allow direct listing of securities by Indian companies in permissible foreign jurisdictions as per rules to be prescribed.
The amendments in the bill are expected to considerably enhance the faith of Indian corporate in the government’s resolve to facilitate greater ease of doing business and provide great respect to law-abiding wealth creators in the country thereby reducing the burden on the judicial system. The MCA ministry of corporate affairs had mentioned that the priority is to remove sections that criminalise offences having no malafide intent. Hopefully, the intended changes in the Act will make the process of doing business efficient and smoother.
Also, Read: Fraud and Offences Punishable under Companies Act 2013.