Lok Sabha passes Bill to Amend companies act, promote ease of doing business

 

In News:

• The Lok Sabha has passed the Companies Act (Amendment) Bill, 2020, which decriminalizes a number of technical and filing-related corporate offences.
• The Bill seeks to amend the Companies Act, 2013.

 

About: Companies Act 2013

• The Companies Act 2013 regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company.
• Compoundable Offence:
  • Any offence which is punishable with fine or penalty only under the specific section of the Companies Act, 2013 is compoundable offence.
  • Note: Compoundable offences are those offences where, the complainant enters into a compromise, and agrees to have the charges dropped against the accused.
• Non-Compoundable Offence:
  • Any offence which is punishable with imprisonment only or with imprisonment and fine or penalty only under the specific section of the Companies Act, 2013 is non-compoundable offence.
  • There are some offences, the nature of which is considered grave enough, that compromise cannot be allowed. Full trail is held which ends with the acquittal or conviction of the offender, based on the evidence given.

 

Background of rationalization of punishments prescribed under the Companies Act:

• The Companies Act 2013 was too stringent, criminalizing even the smaller offences.
• Since 2019, to facilitate ease of doing business in India, the Ministry of Corporate Affairs (MoCA) started making efforts to decriminalize the Companies Act, 2013.
• Company Law Committee (CLC) / Injeti Srinivas Committee:
  • In September 2019, the government constituted a 11-member company law committee, headed by corporate affairs secretary Injeti Srinivas.
  • Objective of the Committee was to analyse and examine:
    • Decriminalisation of certain offences under the Companies Act, 2013,
    • Improving corporate compliance and
    • Other steps to improve the ease of doing business for law-abiding citizens.
  • Recommendations:
    • The panel proposed decriminalising more than half of the existing compoundable offences under the companies law and lower monetary penalties for violations by startups, amid efforts to further improve the ease of doing business in the country.
    • CLC also recommended dealing of compoundable offence by In-house Adjudication Mechanism (IAM) which is at the rank of Registrar of Companies (RoC) level officer.

 

News Summary:

• The government has in Parliament introduced the Companies Act (Amendment) Bill, 2020 to amend the Companies Act, 2013.
• The Bill, which decriminalises a number of technical and filing-related corporate offences, has been passed by the Lok Sabha.
• The union finance minister said that the decriminalisation of various provisions under the companies law will also help small companies by reducing litigation burden on them.
• It also looks to promote ease of doing business, by amending around 17 provisions.
• A new chapter on producer organisations was added, which will be particularly helpful for farmer producer organisations (FPOs).

 

Companies Act (Amendment) Bill, 2020

• Based on the recommendations of the Injeti Srinivas Committee, the Companies (Amendment) Bill, 2020 proposes to decriminalise a number of offences under the Act.
• Around 48 sections of the Companies Act, 2013 were amended to decriminalise various offences.
• Around 10 penal provisions have been removed, and currently there are around 124 penal provisions compared to 134 in 2013 Companies Act.
• However, there will be no relaxation for serious offences, including fraud and those that cause “injury to public interest or deceit". The number of "non-compoundable" offences under the Act remains the same at 35.

Changes introduced in the Companies Act:

• Changes to offenses:
  
• • The bill removes the penalty, imprisonment for certain offenses, and reduces the amount of fine payable in certain cases.
  • It removes the penalty for certain offences.
  • • For example, it removes the penalties which apply for any change in the rights of a class of shareholders made in violation of the Act.
  • It removes imprisonment in certain offences.
  • • For example, it removes the imprisonment of three years applicable to a company for buying back its shares without complying with the Act. 
  • It reduces the amount of fine payable in certain offences.
  • • For example, it reduces the maximum fine for failure to file annual return with the Registrar of Companies from five lakh rupees to two lakh rupees.
• Exclusion from listed companies:
  
• • The Bill empowers the Centre in consultation with the Sebi, to exclude companies issuing specified classes of securities from the definition of a “listed company”.
• CSR: The Bill exempts companies with a CSR liability of up to Rs 50 lakh a year from setting up CSR Committees.
• Benches of NCLAT: The Bill seeks to establish benches of the National Company Law Appellate Tribunal in New Delhi.
• Direct listing in foreign jurisdictions: The Bill empowers the central government to allow certain classes of public companies to list classes of securities in foreign jurisdictions.