On 19th September 2020, The Lok Sabha, by voice vote passed the Bill proposing amendment in 48 sections of the Companies Act, 2013.The proposed bill was introduced in the Lok Sabha in May, 2020 by the Finance and Corporate Law Minister, Nirmala Sitharaman. The Bill is set to replace an Ordinance that has already brought changes into effect.

Companies Act deals with incorporation of a company, responsibilities of a company, directors, dissolution of a company. Companies Act, 2013 was introduced in 2013 after the Companies Act, 1956 was repealed to create flexibility and simplicity in the formation and maintenance of companies and to encourage transparency and high standards of corporate governance.

The Bill was introduced in the Parliament during the pandemic where companies are facing difficulties. It aims to promote ease of doing business by decriminalizing a number of technical and filing-related corporate offences. Some of the changes passed under the new Bill are:

●       It amends 17 provisions to improve ease of doing business.

●       Various non-compoundable offences in case of default have been decriminalized while offences like frauds, omitting imprisonment for various offences which were considered procedural and technical in nature and were left unaltered.

●       It 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.

●       It reduces timeline for rights issues.

●       It permits direct overseas listing of Indian corporates securities in permissible foreign jurisdictions through an enabling provision. It empowers the central government to allow certain classes of public companies to list classes of securities (as may be prescribed) in foreign jurisdictions. It also allows exclusion of companies issuing specified classes of securities from the definition of a “listed company”.

●       In terms of Corporate Social Responsibility (CSR), the bill exempts companies with a CSR liability of up to Rs 50 lakh a year from setting up CSR Committees.

●       It introduces a new chapter related to producer organizations – particularly beneficial to farmers.

●       It creates separate benches at the National Company Law Appellate Tribunal (NCLAT)

Other amendments 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 bill removes the penalties which apply for any change in the rights of a class of shareholders made in violation of the Act. Where a specific penalty is not mentioned, the Act prescribes a penalty of up to Rs 10,000 which may extend to Rs 1,000 per day for a continuing default. It also removes imprisonment in certain offences. It removes the imprisonment of three years applicable to a company for buying back its shares without complying with the Act. The bill reduces the maximum fine for failure to file an annual return with the Registrar of Companies from Rs. 5,00,000 to Rs. 2,00,000.

Mrs. Nirmala Sitharaman said that the decriminalization of various penal provisions under the Companies Act, 2013 will also help small companies by reducing the litigation burden on them. Around 48 Sections of the Companies Act, 2013 will be amended to decriminalize various offences. Sitharaman said there are currently around 124 penal provisions compared to 134 in 2013 under the Companies Act.  The proposed amendments will help businesses to deal with the problems faced by them during this pandemic and reduce the burden of facing criminal action for small errors made during the course of business.

 This news has been reported by Ms. Roshni Kapur & reviewed by Ms. Samreen Ahmed, Research Assistant, Research & Innovation Department, MyLawman.