The Companies (Amendment) Bill, 2020:-

The Lok Sabha on Saturday passed a bill to further amend around 48 sections of the Companies Act, 2013 by decriminalizing various non-compoundable offences in case of defaults, but not involving frauds, omitting imprisonment for various offences which were considered procedural and technical in nature.

The bill comes at a time when companies are reeling under stress due the coronavirus pandemic. The Companies (Amendment) Bill, 2020 was passed by the Lower House through voice vote. The (4th amendment) Bill was introduced in the lower house in May, 2020 by Finance and Corporate Affairs Minister Nirmala Sitharaman.

To recall, the Companies Act 2013 is an Act of the Parliament of India which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company.

Speaking on the bill, Sitharaman yesterday said decriminalisation of various penal provisions under the companies law will also help small companies by reducing the litigation burden on them. Sitharaman said there are currently around 124 penal provisions compared to 134 in 2013 under the Companies Act. The proposed amendment will be carried out in Section 23 of the Companies Act.

The bill removes the penalty, imprisonment for 9 offenses which relate to non-compliance with orders of the national company law tribunal (NCLT), and reduces the amount of fine payable in certain cases. These include matters relating to winding-up of companies, default in publication of NCLT order relating to reduction of share capital, rectification of registers of security holders, variation of rights of shareholders and payment of interest and redemption of debentures.

The Lok Sabha on Saturday i.e. 19th September 2020 passed a bill to further amend the Companies Act and decriminalise various compoundable offences as well as promote ease of doing business in the country.

Main Objective of the Ammendment:-

This amendment in to the Act 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 was 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.

In addition, the Government also proposes to provide greater ease of living to corporates through certain other amendments to the Act.

The Company Law Committee (“CLC/Committee”) presented its report in November, 2019 which provided for de-clogging 46 penal provisions in the following manner:

Re-categorizing of 23 offences out of 66 compoundable offences to an in-house adjudication framework wherein penalty will be levied by an adjudication officer Omitting 7 compoundable offences  Limiting 11 compoundable offences to fine only (by removing imprisonment part) Recommending 5 offences to be dealt with in an alternative framework

The Companies (Amendment) Bill, 2020, based on the CLC Report provides majorly for the following:

(a) to decriminalise 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;

(b) to empower the Central Government to exclude, in consultation with the Securities and Exchange Board, certain class of companies from the definition of “listed company”, mainly for listing of debt securities;

(c) to clarify the jurisdiction of trial court on the basis of place of commission of offence under section 452 of the Act for wrongful withholding of property of a company by its officers or employees, as the case may be;

(d) to incorporate a new Chapter XXIA in the Act relating to Producer Companies, which was earlier part of the Companies Act, 1956;

(e) to set up Benches of the National Company Law Appellate Tribunal;

(f) to make provisions for allowing payment of adequate remuneration to nonexecutive directors in case of inadequacy of profits, by aligning the same with the provisions for remuneration to executive directors in such cases;

(g) 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;

(h) to 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;

(i) to 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;

(j) to reduce timelines for applying for rights issues so as to speed up such issues under section 62;

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

(l) to 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;

(m) to provide for a window within which penalties shall not be levied for delay in filing annual returns and financial statements in certain cases;

(n) to provide for specified classes of unlisted companies to prepare and file their periodical financial results;

(o) to allow direct listing of securities by Indian companies in permissible foreign jurisdictions as per rules to be prescribed.

Quick snapshot of major highlights of Companies (Amendment) Bill, 2020

1. Section 2(52)-Definition of “listed company”

Proposal has been placed to exclude such listed companies and companies with the intention of getting listed such class of securities from the category of “listed companies”.

2. Section 16-Rectification of name

If a company was registered inadvertently with a registered trade mark of a proprietor, and the name is too identical or resembles an existing trade mark, such company has to change its name within 3 months from the issue of CG’s direction instead of 6 months’ timeline provided earlier. Further, with a view to decriminalize the offence, if committed by a company, in case of default in this section, the CG shall allot a new name as per the directions of the ROC to the company and the ROC shall issue a fresh Certificate of Incorporation. Although the company shall not be prevented from changing its name subsequently.

3. Section 62-Further issue of shares (Rights Issue)

As per the existing provisions, the time period for providing offer letter to the existing shareholders under rights issue process is 15 days to 30 days, beyond which the offer is deemed to be declined. It is proposed to lay down such other time period which may be less than the timelines prescribed currently.

The offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days “or such lesser number of days as may be prescribed” and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined.

4. Section 117-Resolutions and agreements to be filed

The section requires filing of resolutions with the ROC. It currently exempts banking companies which are providing loan, guarantee, security in connection with loan in its ordinary course of business from filing the resolution in e-Form MGT-14. It has been now proposed to extend such exemption to registered NBFCs and HFCs.

Section 117(3)(g):

in sub-section (3), in clause (g), for the second proviso, the following proviso shall be substituted, namely:—

“Provided further that nothing contained in this clause shall apply in respect of a resolution passed to grant loans, or give guarantee or provide security in respect of loans under clause (f) of sub-section (3) of section 179 in the ordinary course of its business by,—

(a) a banking company;

Addition:-

(b) any class of non-banking financial company (NBFC)registered under Chapter IIIB of theReserve Bank of India Act, 1934, as may be prescribed in consultation with theReserve Bank of India;

(c) any class of housing finance company (HFC)registered under the National Housing BankAct, 1987, as may be prescribed in consultation with the National Housing Bank;

5. Section 129A-Periodical financial results (newly inserted) – Unlisted Companies

The CG shall require such class or classes of Unlisted companies as may be prescribed :-

  • Prepare periodical financial results (to prepare FS on periodical basis) – in such form as may be prescribed.
  • Obtain approval of the Board of Directors
  • Complete Audit / limited review of such periodical financial results
  • File a copy of periodical financial results with the ROC within 30 days of completion of the relevant period with such fees as may be prescribed.

6. Section 135-Corporate Social Responsibility

The changes proposed are:

  • The amount spent in excess of the requirements may be allowed for set-off for such number of subsequent financial years as may be prescribed.

in sub-section (5), after the second proviso, the following proviso shall be inserted,namely:—

“Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding  Financial years and in such manner, as may be prescribed.”

  • Penalty for default in transfer of unspent amount to the respective funds:

i. On the company-twice the amount required to be transferred or 1 Crore whichever is lower, and

ii. On every officer in default-1/10th of the amount required to be transferred in the respective funds or Rs. 2 lakhs, whichever is lower

  • No requirement of a CSR Committee where the amount required to be spent is less than Rs. 50 lakhs and the Board of Directors shall discharge the functions of that of a CSR Committee.

7. Section 149-Company to have Board of Directors (Independent Directors)

In the existing provisions provide that Independent Directors (IDs) are entitled to sitting fees, profit related commission and reimbursement of expenses incurred in attending meetings as per Section 197(5).

The amendments provide for a new insertion and it states that an ID and Non-Executive Directors may receive any other sort of remuneration, excluding the aforesaid, in terms of Schedule V where there is no profit or inadequate profits in the company.

In section 149 of the principal Act, in sub-section (9), the following proviso shall be inserted, namely:—

“Provided that if a company has no profits or its profits are inadequate, an independent director may receive remuneration, exclusive of any fees payable under sub-section (5) of section 197, in accordance with the provisions of Schedule V.”.

Object / purpose of the above amendment:-  a new proviso provides that an independent director may receive remuneration, if a company has no profits or inadequate profits in accordance with Schedule V of the Act.

8. Section 197- Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits

Section 197(3) has been aligned with Section 149(9) to include any non-executive director’s and independent director’s within the ambit of remuneration payable as per Schedule V in case of no profits or inadequate profits.

Section 197 (3) Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of Schedule V, if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or whole-time director or manager or any other non-executive director, including an independent director, by way of remuneration any sum exclusive of any fees payable to directors under sub-section(5) hereunder except in accordance with the provisions of Schedule V .

Purpose:  if a company fails to make profits or makes inadequate profits in a financial year, any non-executive director of such company, including an independent director, shall be paid remuneration in accordance with Schedule V of the Act.

9. Producer Company – Chapter XXIA

Provisions of Producer Company added after Section 378 as 378A to 378ZU.

Object:-  to insert a new Chapter as Chapter XXIA relating to Producer Companies on similar lines as provided in the Companies Act, 1956.

*****

Disclaimer:The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. In no event shall i shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information 

Author- CS Shweta Maheshwari and can be contacted at Shweta.maheshwari26@gmail.com

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