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Abhishek Iyer
In furtherance of promoting healthy business for wealth creators, the Union Cabinet recently approved the Companies (Amendment) Bill, 2020
Notable key features include the listing of Indian firms in foreign stock exchange, and increasing the ease-of-living for corporates by re-categorization of 23 offences.
Purpose of the Amendment
A committee constituted by the Government of India, in its report submitted in August 2018, concluded that technical or procedural lapses which amount to default could be shifted to an in-house adjudication mechanism.
The Amendment Bill seeks to modify punishments, provide better procedural leverage in conducting business and reduce criminal liability, thereby lessening the burden of Special Courts. Speaking about the Bill which, has now been approved by the Union Cabinet, Finance Minister Nirmala Sitharaman mentioned that,
“Out of 66 compoundable offences under the Act, 23 will get recategorized so that they can be dealt with through in-house adjudication framework, seven have been omitted altogether, 11 will have limited punishment in the form of fines alone by removing imprisonment provision, five will be dealt with under different alternative frameworks, six which had earlier been decriminalized will now have reduced quantum of penalties.”
Re-categorization of offences: Key Changes
The Companies Act, 2013 contains a total of 81 compoundable offences punishable with fine or imprisonment, or both. The amendment bill proposes to re-categorize 23 of these offences to civil nature and limit the punishment only to penalties, as determined by the adjudicating officers (appointed by Central Government).
The changes proposed includes computation of imprisonment clause towards higher monetary penalties and balancing fines for stakeholders.
Section 53 of Companies Act, 2013 prohibits issuance of shares at a discount and further makes every officer liable of such default, to pay a fine between one lakh rupees and five lakh rupees or face imprisonment upto six months. The Amendment Bill proposes to remove the imprisonment and aims to limit the liability only to fine,
as decided by the adjudicating authority.
Section 86(2) has been added to note that any person wilfully furnishing false or incorrect information required to be registered under Section 77, shall be made liable for such action under Section 447.
Through The Amendment Bill, imprisonment of upto six months for failure in filing of annual return under Section 92 of Companies Act, 2013 has been limited to only monetary penalties.
Under Section 105 of Companies Act, 2013, penalty upto five thousand rupees could be extended. The amendment proposes to replace the extension clause into a compulsory clause of five thousand rupees, and nothing less.
Under Section 117 of Companies Act, 2013, the Amendment Bill aims to reduce penalty of liquidator/officer from one lakh rupees to fifty thousand rupees and that of the company from five lakh rupees to one lakh rupees. Moreover, incase of continuing failure, The Amendment Bill proposes to hold liquidator/officer and the company liable to pay five hundred rupees for each day, subject to maximum of five lakh rupees and twenty five lakh rupees, for the company.
Under Section 137(3) of Companies Act, 2013, the Amendment Bill proposes to remove imprisonment clause for all directors and replace the same with ‘a penalty of one lakh rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.’
For default of auditor in filing statement, the Amendment Bill proposes to limit the liability to a maximum of fifty thousand rupees or the remuneration of such auditor, whichever is less, under Section 140 of Companies Act, 2013.
The Amendment Bill proposes to remove imprisonment clause and limit the liability to penalty for any person or director contravening Section 152, 155 and 156 as mentioned under Section 159 of Companies Act, 2013.
Director’s liability under Section 191 of Companies Act, 2013 has been increased to one lakh rupees from the earlier twenty five thousand bracket.
The Amendment Bill proposes to make offences non-compoundable under Section 441(6) of Companies Act, 2013.
Listing of Indian Companies in Foreign Stock Exchanges
In December 2018, SEBI’s Expert Committee in its report, had discussed at length the different permissible foreign jurisdictions where listing could be allowed, necessary tax regulations needed, rules for consolidated accounts and information, and anti-money laundering requirements. The report also included several recommendations for smooth enforcement.
On March 4, 2020, the Union Ministry of Finance enabled listing of Indian companies on stock exchanges in foreign jurisdictions. This certainly comes as a handy step to boost foreign competitiveness of Indian firms and allow them to have access to diversified portfolios, broad investor base, better valuation, and further participate in wealth created by global companies.
Further, framework for such listing is still under works and will be finalised shortly by the Ministry of Finance with the Ministry of Corporate Affairs and the Securities Exchange Board of India.
Conclusion:
At a time when India is finding ways to boost its economic growth, the Amendment Bill shall certainly help stakeholders breathe easy. It will ensure minimal exposure to courts, faster in-house adjudication, and effective enforcement in case of default.
The Bill also helps the agenda of de-clogging the criminal justice system in India, and aims to facilitate a structured, efficient and transparent corporate governance formula.