Report of the Committee to review offences under Companies Act, 2013 attempts to make an objective assessment of the existing regulatory framework under the Companies Act, 2013 and makes recommendations to be able to achieve a marked improvement in corporate compliance. In order to ensure that serious offenders are brought to book, it is necessary to free the courts from dealing with offences that are essentially procedural and technical lapses that can be handled effectively through an in-house adjudication mechanism. For the sake of clarity it may be emphasised that there is no intent to dilute the rigours or scope of the enforcement action relating to serious corporate offences, including fraud. On the contrary the aim is to strengthen the enforcement of law against serious offences by de-burdening the courts of matters of routine nature. It may also be noted that the cross-cutting liability under section 447, which deals with corporate fraud, remains wherever fraud is found irrespective of the section under which an offence is committed and the primary liability it attracts.

2. The report also attempts to declog the National Company Law Tribunal (“NCLT”) by recommending suitable amendments, including significant reduction in compounding cases before the Tribunal. In addition it also touches upon certain essential elements related to corporate governance such as declaration of commencement of business, maintenance of a registered office, protection of depositors, registration and management of charges, declaration of significant beneficial ownership, and independence of independent directors. The main recommendations of the Committee are as follows:

I. Re-categorising of 16 offences out of the 81 which are in the category of compoundable offences to an in-house adjudication framework wherein defaults would be subject to a penalty levied by an adjudicating officer.

II. No change is suggested in respect of any of the non-compoundable offences.

III. Instituting a transparent and technology driven in house adjudication mechanism and increasing the transparency in the in-house adjudication mechanism by minimizing physical interface, conducting proceedings on an online platform and publication of the orders on the website.

IV. Strengthening the in-house adjudication mechanism by necessitating a concomitant order for making good the default at the time of levying penalty, to subserve the ultimate aim of achieving better compliance.

V. Declogging the NCLT by:

a. enlarging the jurisdiction of Regional Director (“RD”) by enhancing the pecuniary limits up to which they can compound offences under section 441 of the Act.

b. vesting in the Central Government the power to approve the alteration in the financial year of a company under section 2(41); and

c. vesting the Central Government the power to approve cases of conversion of public companies into private companies.

VI. Chapter IV contains recommendations related to corporate compliance and corporate governance. The main recommendations include re­introduction of declaration of commencement of business provision to better tackle the menace of ‘shell companies’; protection of public deposits through greater disclosures; greater accountability with respect to filing documents related to creation, modification and satisfaction of charges; non-maintenance of registered office to trigger de-registration process; holding of directorships beyond permissible limits to trigger disqualification of such directors; and imposition of a cap on maximum remuneration to independent directors to ensure that there does not exist material pecuniary relationship between the independent director and the promoter group that can impair his independence.

3. I am hopeful that the recommendations of the Committee will provide useful inputs for a robust corporate compliance framework and enhanced corporate governance, while simultaneously reducing the overall burden of special courts and NCLT.

Injeti Srinivas
Secretary, Ministry of Corporate Affairs &
Chairman, Committee to review offences under Companies Act, 2013
New Delhi, 14 August, 2018

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