The Lok Sabha on Saturday passed a bill to amend the Companies Act, 2013, and decriminalise various compoundable offences. The Companies (Amendment) Bill, 2020, proposes decriminalising various penal provisions, permit direct overseas listing of Indian corporates, and introduce a new chapter related to producer organisations in the legislation.
Finance and Corporate Affairs Minister Nirmala Sitharaman told the Lok Sabha that the decriminalisation of various provisions under the Companies Act will also help small companies by reducing litigation burden on them.
Generally, compoundable offences are those which can be settled by paying a certain amount of money.
Around 48 sections of the Companies Act, 2013, will be amended to decriminalise various offences.
Here are some of the significant changes:
The Bill looks to decriminalise various provisions especially at a time when companies are under severe financial stress due to the pandemic. The FM said that this will also help reduce litigation burden on smaller companies.
The Bill proposes to remove imprisonment for nine offences that are related to non-compliance of orders of the National Company Law Tribunal (NCLT), including default in publication of NCLT order on reducing share capital, variation of rights of shareholders, matters related to winding up of companies, among others.
The bill also removes imprisonment in matters to be stated in a prospectus, when a company files for an Initial Public Offering (IPO). The bill has also omitted imprisonment for lapses in a company’s financial statements and for non-compliance with procedures of share buybacks.
The bill also seeks to reduce penalty for some offences, such as delay in filing financial statements with the registrar of companies (RoC) or failing to declare significant beneficial ownership, among others.
Stressing that there will be no relaxation for serious offences, including fraud and those that cause "injury to public interest or deceit", the FM said the number of "non-compoundable" offences under the Act remains the same at 35.
The bill also allows public companies to list certain class of securities in foreign jurisdictions. This means Indian companies can list on stock exchanges abroad before listing in India. Earlier, companies couldn’t list on stock exchanges abroad before being listed on stock exchanges in India.
Companies with a Corporate Social Responsibility (CSR) obligation to spend Rs 50 lakh or less will not be required to constitute a CSR committee.
Under the Act, certain class of profitable companies are required to shell out at least 2% of their three-year annual average net profit towards CSR (Corporate Social Responsibility) activities.
Earlier, if a company failed to transfer the mandated 2% to a specific fund, the penalty for the same was a minimum fine of Rs 5 lakh and three years of imprisonment. The Bill seeks to amend this where company fails to transfer the amount, it will have to either pay twice that amount, or Rs 1 crore, whichever is less. In addition, officers of the company will have to pay a penalty of 1/10th the amount.
For example, a company has an average net profit of Rs 1 crore and has to transfer Rs 20 lakh (2%) to its CSR fund, and fails to do so. Then it will have to pay Rs 40 lakh as fine and each officer of the company will have to pay a penalty of Rs 2 lakh (1/10th)
A new chapter on producer organisation will be added, the minister said and noted that it will be particularly helpful for farmer producer organisations.
A producer organisation is a legally recognised body of farmers or agriculturists. The objective as defined by the Act is production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit.
For promoting "ease of doing business," the minister said that 17 provisions will be amended.
With PTI inputs