The Rajya Sabha on Tuesday 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.
The Bill, which proposes to amend 64 provisions of the Act to make overall 75 changes, was passed by the Lower House last week.
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.
The Bill was passed with minimum deliberation as the Opposition leaders staged a walk out. Certain apprehensions expressed by MPs over this legislation are listed below:
- Decriminalization of offences may encourage "unbridled corporate culture" of covering up default by merely expending funds.
- Stakeholder consultation not conducted.
- Relaxation in provisions of CSR not in public interest.
Minister of Corporate Affairs, Nirmala Sitharaman told the House that the amendments were proposed based on the report of a Company Law Committee, consisting of representatives from Ministry, industry chambers, professional institutes and legal fraternity
She assured the House that there were 35 Serious/ non-compoundable offences under the parent Act, and the same remained unchanged.
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.