Lok Sabha passes 72 changes to the Companies Act to decriminalize certain offenses

The Lok Sabha on Saturday (September 19, 2020) passed the Companies (Amendment) Act, 2020 bill that seeks 72 changes to decriminalise certain offences under the Companies Act, 2013, in case of defaults but not involving frauds.

“There are 48 sections we have amended to decriminalize them and 17 sections have been amended to improve the ease of doing business,” Finance and Corporate Minister Nirmala Sitharaman said during a debate on the bill. Nirmala Sitharaman said that the decriminalisation of various provisions under the companies law will also help small companies by reducing the litigation burden on them. She also stressed that there will be no relaxation for serious offenses, including fraud and those that cause “injury to public interest or deceit”. She added that the number of “non-compoundable” offenses under the Act remains the same at 35. The Minister further said that there are currently around 124 penal provisions compared to 134 under the Companies Act, 2013. This would also reduce the burden on the National Company Law Tribunal, she said.

As part of the Companies (Amendment) Bill, 2020, the following are some of the key amendments passed by Lok Sabha

Changes to offenses: The bill removes the penalty, imprisonment for certain offenses, and reduces the amount of fine payable in certain cases.  Under the amended Act, one-person companies or small companies are only liable to pay up to 50% of the penalty for certain offences. Almost 23 compoundable offences would be recategorised out of 66 compoundable offences under the Act, to be dealt with an in-house adjudicating mechanism. Besides, seven compoundable offences would be omitted.

Segregation from listed companies: The bill provides for the direct listing of securities of Indian public companies in permissible foreign jurisdictions and also empowers the government, in consultation with the SEBI, to exclude companies issuing specified classes of securities from the definition of a “listed company”.

Exemptions from filing resolutions: The Act provides that banking companies are exempt from filing resolutions passed to grant loans or to provide guarantees or security for a loan. The companies other than banking companies require filing of certain resolutions with the Registrar of Companies, which include resolutions of the Board of Directors of the company to borrow money, or grant loans. This exemption available to banking companies has been extended to registered nonbanking financial companies and housing finance companies under companies amended bill 2020.

Corporate social responsibility (CSR): The Bill exempts companies with corporate social responsibility (CSR) liability of up to Rs 50 lakh a year from the need to set up a CSR committee. The provisions under the bill also allowed companies to roll over excess corporate social responsibility (CSR) spend to succeeding years.

Additional benches of the National Company Law Appellate Tribunal: The bill provides for setting up of additional benches of the National Company Law Appellate Tribunal in locations specified by the Centre.

Further, the exemption provided to key managerial posts from government-mandated restrictions on compensation in case a company is facing liquidation is proposed to be expanded to include independent directors as well.