The Companies (Amendment) Act, 2020

The Lok Sabha on Saturday passed a bill that looks to decriminalize certain offenses under the Companies Act, 2013, in the event of defaults however not including frauds. The Companies (Amendment) Act, 2020, was passed by Lok Sabha through voice vote. Around 48 areas of the Companies Act, 2013 will be altered to decriminalize different offenses. Talking on the bill, Finance and Corporate Affairs Minister Nirmala Sitharaman said decriminalization of different arrangements under the organization’s law will likewise help little organizations by lessening the suit trouble on them. Sitharaman said there are as of now around 124 reformatory arrangements contrasted with 134 under the Companies Act, 2013. Focusing on that there will be no unwinding for genuine offenses, including extortion and those that cause “injury to public intrigue or misleading”, the pastor said the quantity of “non-compoundable” offenses under the Act continues as before at 35.  Important changes include Changes to offenses: The bill eliminates the punishment, detainment for specific offenses, and decreases the measure of fine payable in specific cases.

Nonetheless, Under the Act, one-individual organizations or little organizations are just at risk to take care of up to half of the punishment for specific offenses; Rejection from recorded organizations: The Bill engages the Center in meeting with the SEBI, to avoid organizations giving indicated classes of protections from the meaning of a “listed organization”; Exceptions from documenting goals: The Act expects organizations to record certain goals with the Registrar of Companies, which incorporate goals of the Board of Directors of the organization to acquire cash or award credits.

Notwithstanding, banking organizations are absolved from documenting goals that went to give credits or to give assurances or security to an advance. This exception has been reached out to enlisted nonbanking money related organizations and lodging organizations; CSR: The Bill excludes organizations with a CSR risk of up to Rs 50 lakh a year from setting up CSR Committees; Seats of NCLAT: The Bill looks to set up seats of the National Company Law Appellate Tribunal in New Delhi and Direct posting in unfamiliar wards: The Bill enables the focal government to permit certain classes of public organizations to list classes of protections in unfamiliar locales. This article will deal with all the amendments in detail.

Keywords: CSR foreign jurisdictions NCLAT financial and housing companies

Introduction:

The Lok Sabha on Saturday passed a bill that looks to decriminalize certain offenses under the Companies Act, 2013 if there should be an occurrence of defaults however not including frauds.  The Companies (Amendment) Act, 2020, was passed by Lok Sabha through voice vote. Around 48 areas of the Companies Act, 2013 will be revised to decriminalize different offenses. Talking on the bill, Finance and Corporate Affairs Minister Nirmala Sitharaman said decriminalization of different arrangements under the organization’s law will likewise help little organizations by lessening the case trouble on them.

The finance minister of India, Smt. Nirmala Sitharaman postponed the Companies (Amendment) Bill, 2020 (the “Bill”) before the Lok Sabha on March 17, 2020, to acquaint certain adjustments with the Companies Act, 2013 (the “Demonstration”) to advance the simplicity of working together and simplicity of living to corporates in India. The proposed amendments under the Bill depend on the suggestions presented by the Company Law Committee which was framed with delegates from the business chambers, proficient establishments, and legitimate clique. 

The command of the Committee was moderately wide-going including visualizing different changes to the Act, for example, assessing offenses, acquainting components with diminish trouble on courts, guaranteeing successful removal of cases, improving the working of different specialists under the Act, and recommending different changes with the target of advancing simplicity of working together in India. The Committee presented its report to the union minister, Ministry of Corporate Affairs (MCA) on November 14, 2019.

The suggestions of the Committee were generally founded on re-arrangement of certain criminal compoundable offenses into common wrongs conveying common liabilities, the legitimization of punishments, systems for decreasing the general pendency of debates, and certain other subordinate changes to address rising issues affecting the working of corporates in the nation.

Sitharaman said there are right now around 124 punitive arrangements contrasted with 134 under the Companies Act, 2013. Focusing on that there will be no unwinding for genuine offenses, including extortion and those that cause “injury to public intrigue or trickery”, the clergyman said the quantity of “non-compoundable” offenses under the Act continues as before at 35.

Highlights of the Amendments:

Decriminalization of the Companies Act: Reduction in Penalties: Decriminalisation of the Companies Act, 2013 is the main feature of the Amendment Act. It removes the imprisonment for various offenses, substitutes fine by a penalty in, and reduces the amount of payable as penalty across the board. In certain minor omissions, etc. penal consequence has been omitted.

One-person companies, small companies, start-up companies or Producer Companies, or by any of its officers in default, or any other person in respect of such company, then such company or person shall be liable to one-half of the penalty specified and it is subject to a maximum of Rs. 2.00 lakh in case of a company and Rs. 1.00 lakh in case of an officer who is in default or any other person.

Exclusion from listed companies: The Amendment Act empowers the Centre in consultation with the SEBI, to exclude companies issuing specified classes of securities from the definition of a “listed company”. The objective of according such flexibility is to exclude such private companies that list their debt securities on a recognized stock exchange upon their allotment on a private placement basis, thereby falling under the definition of a ‘listed company’ under the Act. This can incentivize private companies to seek a listing of their debt securities.

Exemptions from filing resolutions: The Act requires companies to file certain resolutions with the Registrar of Companies, which include resolutions of the Board of Directors of the company to borrow money, or grant loans. However, banking companies are exempt from filing resolutions passed to grant loans or to provide guarantees or security for a loan. This exemption has been extended to registered nonbanking financial companies and housing finance companies.

CSR: The Act exempts companies with a CSR liability of up to Rs 50 lakh a year from setting up CSR Committees.

Benches of NCLAT: The Act provides to establish benches of the National Company Law Appellate Tribunal in New Delhi.

Direct listing in foreign jurisdictions: The Act empowers the central government to allow certain classes of public companies to list classes of securities in foreign jurisdictions.

The Companies (Amendment) Act, 2020, inter alia, provides for the following as per its Statement of Objects, namely: —

  • to decriminalize certain offenses 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;
  • to empower the Central Government to exclude, in consultation with the Securities and Exchange Board, a certain class of companies from the definition of “listed company”, mainly for the listing of debt securities;
  • to clarify the jurisdiction of the trial court based on place of commission of an offense under section 452 of the Act for wrongful withholding of property of a company by its officers or employees, as the case may be;
  • to incorporate a new Chapter XXIA in the Act relating to Producer Companies, which was earlier part of the Companies Act, 1956;
  • to set up Benches of the National Company Law Appellate Tribunal;
  • to make provisions for allowing payment of adequate remuneration to non-executive directors in case of inadequacy of profits, by aligning the same with the provisions for remuneration to executive directors in such cases;
  • 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;
  • to extend the 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;
  • to exempt any class of persons from complying with the requirements of section 89 relating to declaration of a 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;
  • to reduce timelines for applying for rights issues to speed up such issues under section 62;
  • to extend exemptions to certain classes of non-banking financial companies and housing finance companies from filing certain resolutions under section 117;
  • 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 over their Corporate Social Responsibility spending obligation in a particular financial year towards such obligation in subsequent financial years;
  • to provide for a window within which penalties shall not be levied for delay in filing annual returns and financial statements in certain cases;
  • to provide for specified classes of unlisted companies to prepare and file their periodical financial results;
  • to allow direct listing of securities by Indian companies in permissible foreign jurisdictions as per rules to be prescribed.

Amendments related to Chapter IX and X

Section 129 A- Specified unlisted entities to prepare and file periodical financial statements: New section 129A has been presented, which endorses determined classes of unlisted organizations to get ready and record their periodical monetary outcomes at a recurrence that will be advised later. This arrangement is pointed toward improving corporate administration.

Section 135- Corporate Social Responsibility: Set Off of overabundance sum Provision for setting off abundance sum against the necessity to be spent under CSR movement for such several succeeding money-related years and in such way, as might be endorsed.

Exception from framing CSR Committee– Where the sum to be spent by an organization for CSR movement doesn’t surpass fifty lakh rupees, the necessity for the constitution of the Corporate Social Responsibility Committee will not be material and the elements of such Committee gave under this segment will, in such cases, be released by the Board of Directors of such organization.

Punishment for Non-Compliance- Penalty arrangement has been embedded for non­compliance of arrangements of Corporate Social Responsibility.

Section 140- Removal, Resignation of Auditor and Giving of Special Notice: According to Section 140 (3), If the evaluator doesn’t agree to the arrangements of sub-section (2), he or it will be obligated to a punishment of 50,000 rupees or a sum equivalent to the compensation of the inspector, whichever is less, and if there should be an occurrence of proceeding with disappointment, with additional punishment of 500 rupees for every day after the first during which such disappointment proceeds, subject to a limit of five lakh rupees.

Amendment Introduced

  • In segment 140 of the chief Act, in sub-section (3), for the words “five lakh rupees”, the words “two lakh rupees” will be subbed.
  • The maximum liability for an auditor has been reduced from Rs 5 lakh to Rs 2 lakh.

Section 143-Powers and Duties of Auditors and Auditing Standards: Segment 143 (12)- Notwithstanding anything contained in this section, if an auditor of an organization throughout the exhibition of his obligations as an inspector, has the motivation to accept that an offense of extortion including such sum or sums as might be recommended, is being or has been submitted in the organization by its officials or workers, the examiner will report the issue to the Central Government inside such time and in such way, as might be endorsed: 

Given that in the event of a misrepresentation including lesser than the predefined sum, the examiner will report the issue to the review council comprised under section 177 or to the Board in different cases inside such time and in such way as might be recommended:

Given further that the organizations, whose evaluators have announced fakes under this sub­section to the review advisory group or the Board however not answered to the Central Government, will unveil the insights concerning such fakes in the Board’s report in such way as might be prescribed.]

Section 143 (15)- If any auditor, cost bookkeeper, or organization secretary practically speaking don’t agree to the arrangements of sub-section (12), he will be culpable with a fine which will not be short of what one lakh rupees yet which may reach out to 25 lakh rupees.

Amendment Introduced

  • In Section 143 of the principal Act, for sub-section (15), the following sub-section shall be substituted, namely: — “(15) If any auditor, cost accountant, or company secretary in practice does not comply with the provisions of sub-section (12), he shall, —
  • in case of a listed company, be liable to a penalty of five lakh rupees; and
  • in case of any other company, be liable to a penalty of one lakh rupees.”
  • The maximum liability for an auditor has been reduced from
  • For listed company- from Rs 25 lakh to Rs 5 lakh.
  • For any other company- from Rs 25 lakh to Rs 1 lakh.

Section 147- Punishment for Contravention: 2) If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144, or section 145, the auditor shall be punishable with a fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees 1[or four times the remuneration of the auditor, whichever is less]

Amendment Introduced

  • In Section 147 of the principal Act, — (a) in sub-section (2), the words “, Section 143” shall be omitted. Punishment of Section 143 has been provided in Section 143 itself, therefore, it has been omitted in Section 147.

Other Amendments

  1. Section 129A – New Section Introduced – Periodical Financial Result by unlisted companies: The Central Government may require such class or classes of unlisted organizations, as might be recommended, —
  2. To set up the monetary consequences of the organization on such periodical premise and in such structure as might be endorsed;
  3. To get an endorsement of the Board of Directors and complete review or restricted audit of such periodical monetary outcomes in such way as might be recommended; and
  4. File a duplicate with the Registrar inside a time of thirty days of finishing off the pertinent period with so many charges as might be recommended.”
  • Corporate Social Responsibility Section 135: In sub-section (5), after the subsequent stipulation, the accompanying stipulation will be embedded, specifically: — “Gave likewise that if the organization spends a sum in an overabundance of the prerequisites gave under this sub-segment, such organization may set off such abundance sum against the necessity to spend under this sub-segment for such number of succeeding budgetary years and in such way, as might be recommended.”  
  • Autonomous Director Section 149: In area 149 of the chief Act, in sub-segment (9), the accompanying stipulation will be embedded, in particular: “Gave that if an organization has no benefits or its benefits are deficient, a free chief may get compensation, elite of any charges payable under sub-segment (5) of segment 197, as per the arrangements of Schedule V”.
  • Compensation to Directors-Section 197: (3) Notwithstanding anything contained in sub-areas (1) and (2), yet subject to the arrangements of Schedule V, if in any money related year, an organization has no benefits or its benefits are deficient, the organization will not pay to its chiefs, including any overseeing or whole time chief or administrator or some other non-leader chief, including a free chief, by a method of compensation any aggregate elite of any expenses payable to chiefs under sub­section (5) hereunder aside from as per the arrangements of Schedule V.
  • Right Issue of Shares Section 62: The offer will be made by notice determining the number of offers offered and restricting a period not being under fifteen days “or such lesser number of days as might be recommended” and not surpassing thirty days from the date of the proposal inside which the offer, if not acknowledged, will be considered to have been declined;]
  • Section 117(3)(g): In sub-section (3), in a statement (g), for the subsequent stipulation, the accompanying stipulation will be subbed, in particular: — “Gave further that nothing contained in this proviso will apply in regard of a goal went to concede advances, or give ensure or give security in regard of advances under condition (f) of sub-segment (3) of segment 179 in the customary course of its business by, — 
  • a financial organization;
  • any class of non-banking budgetary organization enrolled under Chapter IIIB of the Reserve Bank of India Act, 1934, as might be endorsed in counsel with the Reserve Bank of India;
  • any class of lodging money organization enlisted under the National Housing Bank Act, 1987, as might be endorsed in counsel with the National Housing Bank”.

References:

The Companies (Amendment) Act, 2020 No. 29 Of 2020, Ministry of Law and Justice (Legislative Department), The Gazette of India, Part II — Section 1, CG-DL-E-28092020-222070, September 28, 2020

Lok Sabha passes Companies (Amendment) Bill 2020, The Hindu Business Line, September 19, 2020

Sukanya Roy, All you need to know about the Companies (Amendment) Bill 2020, Business Standard, September 20, 2020

Highlights of the amendments made by the Companies (Amendment) Act, 2020 by CL&CGC ICAI, The Institute of Chartered Accountants of India Corporate Laws & Corporate Governance Committee The Institute of Chartered Accountants of India, Tax Guru, September 29, 2020

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