Ease of doing business is a mirage? Companies Amendment Act, 2019 replaced the words fine with penalty. Is it a Ease of levying Penalties or ease of doing Business?

Ease of doing business is a mirage?

Companies amendment act 2019 replaced the words fine with penalty, stating that it will reduce the hardship of companies with in house adjudication.

First of all let us see what is the difference between fine and penalty in company law.

Fine are levied by special judicial courts for non compliance of any provision of companies act, after a judicious analysis  of non compliance and it’s severity to decide quantum of fine.

Penalties are levied by the executive body of MCA themselves after a summary proceeding.

So, let us understand what happens as of now:

A company makes a non compliance, say delay in filing a form. The RoC will issue show cause, receive reply, ascertain the non- compliance provision, file a case with special company court. The court after hearing both the sides based on the severity and effect of non compliance to various stake holders levies a reasonable fine. The order is again a subject matter of legal scrutiny by higher court.

Now let us see what new system will be:

RoC will issue show cause, receive reply and if not found satisfactory will levy penalty. The penalties will be based on some administrative predetermined multiple or formula, without much reasoning of damage to stakeholders.
Appeal will lie to Regional Director, who is the administrative head of RoC.

So what ease does happen.

With this change, ease will happen in levying penalties against companies without any judicial analysis. Small fishes will feel pinch of heavy penalties based on pre determined formulas and bigger crocodile will go scratch free without feeling the effect of penalties against the quantum of fault made.

So, the big question is whether the changes will be ease of doing business for corporates or ease of levying penalties by executives?

CS Ranjit Kejriwal

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March 2021