Lok Sabha Clears Bill To Decriminalize Minor Procedural Offences/ Technical Lapses Under Companies Act 2013 [Read Bill]

Akshita Saxena

20 Sep 2020 4:04 AM GMT

  • Lok Sabha Clears Bill To Decriminalize Minor Procedural Offences/ Technical Lapses Under Companies Act 2013 [Read Bill]

    The Lok Sabha on Saturday passed the Companies (Amendment) Bill, 2020 to decriminalize minor procedural or technical lapses under the Companies Act, 2013, into civil wrong, with an aim to enhance the ease of doing business in India. It proposes to amend 64 provisions of the Act to make overall 75 changes. The Bill was introduced in the Lower House by Minister of Corporate...

    The Lok Sabha on Saturday passed the Companies (Amendment) Bill, 2020 to decriminalize minor procedural or technical lapses under the Companies Act, 2013, into civil wrong, with an aim to enhance the ease of doing business in India.

    It proposes to amend 64 provisions of the Act to make overall 75 changes.

    The Bill was introduced in the Lower House by Minister of Corporate Affairs, Nirmala Sitharaman during the Budget Session this year. However, that session was wound up early amid the pandemic and the Bill was finally taken up yesterday.

    As per the statement of Objectives annexed it, the Bill inter alia seeks to:

    • decriminalise offences in case of defaults which can be determined objectively and which otherwise lack any element of fraud or do not involve larger public interest;
    • empower the Central Government to de-list certain class of companies, in consultation with SEBI, primarily for listing of debt securities;
    • Incorporate a new Chapter XXIA in the 2013 Act to govern Producer Companies (earlier governed by the 1956 Act);
    • Set up new NCLAT Benches.

    Parliamentary Debate

    The Bill was largely supported by the House to enhance the ease of doing business in India. However, apprehensions were expressed that such decriminalization of offences may encourage "unbridled corporate culture" of covering up default by merely expending funds. The members thus consistently urged the Government to ensure that provisions of the Act are strictly implemented.

    AITC MP Prof. Sougata Roy said that the Act of 2013 was drafted harshly, certainly because it was passed in the backdrop of the Satyam scandal. He thus concurred that there was a need to decriminalize minor offences, that did not constitute fraud, and help to reduce the burden of NCLT.

    It was also pointed out that the Bill lowers monetary penalties for violation by start-ups, and this will encourage new businesses in India.

    Shiv Sena MP Arvind Sawant also supported the Bill but pointed out certain anomalies therein. He sought to know from the Government about the criteria that will be employed to de-list certain class of companies. "Who will decide which class of companies has to be excluded? What will be the criteria?" he speculated.

    He also asked the Government about an amendment proposed to relax provisions relating to charging of higher additional fees for default on two or more occasions in submitting, filing, registering or recording any document, fact or information as provided in section 403.

    Stressing on the word "More" he remarked, "What is more? What is the number? How many times will the Government forgive a defaulter? A number has to be mentioned."

    The Bill was however opposed by the members of the Congress party who asserted that it was an attempt to overhaul the substance of the Company Law, without holding proper consultations, only to benefit the corporates.

    MP Manish Tewari informed the House that it was after great deliberations that a "fine balance" was struck between cohesive action and civil action under the Company Law. However, the Government had decided to disrupt the same only to benefit the private sector. He highlighted that the Government claimed to have decriminalized offences that do not affect public interest but there was no mention about the parameters of defining such interest.

    Speaking on the new chapter regarding Producer Companies, he said that when the same is read with the recently passed Farmers Bills for contract farming and trade relaxations, it becomes clear that a channel is being made for companies and business to enter into farmers' business. He remarked,

    "It nothing but a backdoor to facilitate the entry of big corporates into the agriculture sector, to militate against the interest of small and marginal farmers. Over a period of time it will have the impact unravelling the first 15 amendments to the Indian constitution from 1950-1965. All those amendments, which were carried out to give land to landless farmers, abolish Zamindari system, assure farmer's dignity of labour and permanency over his land."

    On the aspect of relaxing provisions of CSR and allowing companies to roll over CSR commitment for 3 years, Tewari said that given the manner in which companies already excape their social responsibility, such flexibility in the law is erroneous and it will help the companies to further escape from their liabilities.

    Lastly, he spoke about relaxations granted to NBFCs and finance companies and refuted the same in the backdrop of IL&FS scandal and DHFL's payment defaults.

    As the House had exceeded its scheduled sitting hours for over 3 hours, Minister of Corporate Affairs, Nirmala Sitharaman kept her response very crisp. She responded to the issue of favouring only big corporates and emphasized that all the changes in the law will also benefit MSMEs. She further assured that there were 35 Serious/ non-compoundable offences under the parent Act, and the same remained unchanged.

    Salient Features

    Decriminalization of offences

    The Bill removes imprisonment in certain offences such as:

    • buy-back of shares without complying with the Act;
    • default in complying with procedure for formation of Charitable company;
    • knowingly participating in issue of prospectus in contravention of the law;
    • default in complying with procedure for dealing with Securities in stock exchanges;
    • default in complying with procedure for variation of shareholders' rights;
    • default in keeping Books of Accounts at registered office, etc.;
    • continuing in office of director despite knowledge of disqualification;
    • failure of Director to disclose interest in the company;
    • execution of contract in violation of provisions for Related party transactions, etc.

    The Bill also proposes to remove penalties for commission of certain offences and to reduce the amount of fine payable in certain other offences.

    Other changes proposed by the Bill:

    Make provisions for allowing payment of adequate remuneration to non-executive directors in case of inadequacy of profits, by aligning the same with the provisions for remuneration to executive directors in such cases;

    Relax provisions relating to charging of higher additional fees for default on two or more occasions in submitting, filing, registering or recording any document, fact or information as provided in section 403;

    Extend applicability of section 446B, relating to lesser penalties for small companies and one person companies, to all provisions of the Act which attract monetary penalties and also extend the same benefit to Producer Companies and start-ups;

    Exempt any class of persons from complying with the requirements of section 89 relating to declaration of 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;

    Reduce timelines for applying for rights issues so as to speed up such issues under section 62;

    Extend exemptions to certain classes of non-banking financial companies and housing finance companies from filing certain resolutions under section 117;

    Provide that the companies which have 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;

    Provide for a window within which penalties shall not be levied for delay in filing annual returns and financial statements in certain cases;

    Provide for specified classes of unlisted companies to prepare and file their periodical financial results;

    Allow direct listing of securities by Indian companies in permissible foreign jurisdictions as per rules to be prescribed.

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