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.
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 CAB, 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.
Here is a quick snapshot of the major highlights of the CAB, 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.
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.
5. Section 129A-Periodical financial results (newly inserted) – Unlisted Companies
The CG shall require such class or classes of companies to:
6. Section 135-Corporate Social Responsibility
The changes proposed are:
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
7. Section 149-Company to have Board of Directors (Independent Directors)
The existing provisions provide that Independent Directors (IDs) are not subject to stock options and 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.
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 NEDs and IDs within the ambit of remuneration payable as per Schedule V in case of no profits or inadequate profits.
DISCLAIMER: The information given in this Note has been made on the basis of the provisions stated in the Companies (Amendment) Bill, 2020. It is based on the analysis and our understanding. Mritunjay Shekhar & Associates, Company Secretaries, New Delhi expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this note.