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The Companies (Amendment) Bill, 2020: A Step Towards Ease Of Doing Business?

Harshil Vijayvargiya & Rishab Aggarwal
31 March 2020 2:30 AM GMT
The Companies (Amendment) Bill, 2020: A Step Towards Ease Of Doing Business?
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The Companies (Amendment) Bill has been introduced on 17th March in Lok Sabha. It was tabled by Minister of State for Finance Anurag Thakur. The cabinet has approved around 72 changes in the existing Companies Act.

In this article we would look into how this bill is introduced with the aim of bringing ease of doing business in India.

Ease of Doing Business Grand Challenge

Recently, India achieved a ranking of 63 among 190 nations in World Bank's Ease of Doing Business Index; it meant that India had climbed 14 places as compared to 77 in 2018 rankings.[1] In November 2018, Prime Minister Narendra Modi had launched 'EoDB Grand Challenge' wherein he made an announcement that India would soon break into the Top 50 ranks in the index. This amendment of Companies Act could be seen as one of the tools which would help India in achieving this target.

Establishment of Company Law Committee: Precursor to the Amendment

In pursuance of facilitating ease of living to law abiding corporate, a Company Law Committee (CLC) was formed in September 2019.[2] It consisted of representatives from Ministry, industry chambers, professional institutes and legal fraternity.

The main aim of the committee was to decriminalise some provisions of the Act and provide ease of living for corporate in the country.[3] The committee submitted its report in November 2019 and based on the recommendations of the committee and internal review by the government various provisions of the act were sought to be amended.

The statement of objects and reasons of the bill[4] states that the bill is brought to:

  • decriminalise minor procedural or technical lapses under the provisions of the said Act, into civil wrong;
  • and considering the overall pendency of the courts, a principle based approach is adopted to further remove criminality in case of defaults, which can be determined objectively and which otherwise lack any element of fraud or do not involve larger public interest.

Relevant Amendments to the Companies Act, 2013

As already mentioned, there are more than 72 changes sought to be brought out in the Companies Act, 2013. Here, we will essentially talk about some amendments which are in the nature of pushing ease of doing business in India. We have listed the amendments under their corresponding objects as provided in the bill-

  • "Decriminalising certain offences under the Act in case of defaults which can be determined objectively and which otherwise lack any element of fraud or do not involve larger public interest."

In furtherance of this object, the bill has at many places removed the penalty clause altogether, provided for a lesser punishment or it has done away with the punishment of imprisonment.

It is a much appreciated move by the government as there were several sections which provided for punishment even on minor procedural or technical lapses. This created hassles for Micro Small and Medium Enterprises and diverted their attention from essential business functions. However, through the amendments, these minor punishments/ fines in many cases have been done away with now. This could be seen by some of the following amendments:

  • Amendment of sub-section (11) of section 8. The section 8 provides for 'formulation of companies with charitable objects'. Sub-section (11) provided for imprisonment of officers who are in default in complying with the requirements of the section. The amendment has sought to omit the punishment of imprisonment in relation to an officer who is in default for the offence mentioned therein.
  • Omission of sub-section (11) of section 66 of the Act to remove the penal provisions in case of any default in complying with sub-section (4) of the said section. This section relates to 'Reduction of share capital' & sub-section 4 provided that "The order of confirmation of the reduction of share capital by the Tribunal under sub-section (3) shall be published by the company in such manner as the Tribunal may direct". If the publishing mentioned in the sub-section (3) wasn't done by the company due to some reasons, it led to fine of up to twenty-five lakh rupees.

Now this sub-section (11) is omitted thereby removing the penal provision altogether.

  • The Bill seeks to substitute the third proviso to sub-section (1) of section 403. Section 403 provides for 'Fee for filing, etc' and laid down that "Any document, required to be submitted, filed, registered or recorded, or any fact or information required or authorised to be registered under this Act, shall be submitted, filed, registered or recorded within the time specified in the relevant provision on payment of such fee as may be prescribed".

The bill has amended sub-section (1) to provide that where there is a default on two or more occasions in submitting, filing, registering or recording of prescribed documents the same shall be done on payment of such higher additional fee as may be provided by rule.

Before such amendment, the company was required to pay twice the additional fee prescribed under the respective provisions, however now it is just restricted to 'such higher fees as may be prescribed'.

This amendment would ease out the corporate burden and they would not be under financial burden to pay higher fees.

  • The amendment has been done in Section 446B of the Act to provide for payment of lesser monetary penalty by a start-up company, Producer Company, One Person Company or small company on failure to comply with provisions of the Act which attract monetary penalties. Earlier this provision was applicable only to small company and One Person Company.

This amendment is in consonance with the principle of bolstering start-up culture in India. Studies have shown that several Start-ups face regulatory issues in India.[5] As many as 12% of the total respondents in a survey mentioned that they face such regulatory issues in India as start-ups.[6] Inclusion of Producer Company and start-up in this provision is highly appreciated.

In the same way, there are overall 45 amendments relating to penalty clauses. Some of them seek to omit penalty clauses altogether, some seek to substitute imprisonment with penalty whereas others decrease the penalty/fine levied on default of certain provisions.

  • "Companies having Corporate Social Responsibility spending obligation up to fifty lakh rupees shall not be required to constitute the Corporate Social Responsibility Committee and to allow 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."

With regards to CSR, there is another amendment which is in the nature of easing out the burden of Corporate Social Responsibility. This would allow companies, which have spent an amount in excess of the requirement provided under the said sub-section, to set off such excess amount out of their obligation in the succeeding financial years in such manner as may be provided by rules.

  • "To extend exemptions to certain classes of non-banking financial companies and housing finance companies from filing certain resolutions under section 117."

In furtherance of this object, the bill seeks to substitute the second proviso to clause (g) of sub-section (3) of the said section to enable the Central Government to exempt any class of non-banking financial companies registered under Chapter IIIB of Reserve Bank of India Act, 1934 and any class of housing finance companies registered under the National Housing Bank Act, 1987 from filing of resolutions passed to grant loans or give guarantees or to provide security in respect of loans under clause (f) of sub-section (3) of section 179 of the Act in the ordinary course of their business.

This amendment also seeks to do away with minor technical or procedural compliances and provides opportunity to companies to essentially focus on their business.

Conclusion

Overall, the Companies (Amendment) Bill, 2020 could be considered to be a step towards making it easy to do business in India. The move of government to decriminalize minor procedural lapses, providing windows within which penalties shall not be levied for delay in filing annual returns and financial statements, decreasing fines, and removing penal clauses altogether would surely help India in breaking into the Top 50 ranks in the Ease of Doing Business Index.

(The authors are third year LL.B students of GNLU)

[1]ENDNOTES

Yogima Seth Sharma, India jumps to 63rd position in World Bank's Ease of Doing Business 2020 report, The Economic Times (Mar. 18, 2020, 05.00 PM), https://economictimes.indiatimes.com/news/economy/indicators/india-jumps-to-63rd-position-in-world-banks-doing-business-2020-report/articleshow/71731589.cms?from=mdr.

[2] Devika, Companies Amendment Bill, 2020 introduced in Lok Sabha — To decriminalise certain offences, SCC Online (Mar. 18, 2020, 06.00 PM), https://www.scconline.com/blog/post/2020/03/17/companies-amendment-bill-2020-introduced-in-lok-sabha/.

[3] Id.

[4] The Companies (Amendment) Bill, L.S., 88 (2020).

[5] Dr. G Suresh Babu & Dr. K Sridevi, A study on issues and challenges of startups in India, 2(1) IJFME 44, 47 (2019).

[6] Sarika Sharma et all, Challenges and Issues Faced by Startup Companies in India, 16TH AIMS INT'L CONFERENCE ON MANAGEMENT 109, 112 (2019).

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