Recently, a Bill to amend the Companies Act, 2013 and decriminalise various offences under it was introduced in the Lok Sabha. The proposed amendments aim to reduce the burden on the National Company Law Tribunal.
Proposed Amendments in the Bill
- Decriminalization: The Bill proposed 72 amendments to the Companies Act, 2013 to decriminalise various offences which can promote Ease of doing ethical business and Ease of doing honest business.
- It will also boost the confidence of the investors along with giving an impetus to the business.
- The decriminalization is only for minor, procedural and technical falls which do not involve fraud, injury to the public interest, or non- compoundable offences.
- Recategorization: The changes recategorize at least 23 offences out of the 66 compoundable offences (without the requirement of the permission of the Court) mentioned under the Act in case of defaults. Such cases will be dealt with an in-house adjudication framework.
- Direct Listing in Foreign Jurisdictions: The Bill empowers the Central government to allow certain classes of Indian public companies to directly list classes of securities in foreign jurisdictions.
- This is likely to help start-ups to tap overseas markets for raising capital.
- Remuneration to non-executive Directors: The 2013 Act made special provisions for payment of remuneration to executive directors of a company if the company has inadequate or no profits in a year. The Bill extends this provision to non-executive directors, including independent directors.
- Financial Results Filing & Corporate Governance: Specified class of unlisted companies will now have to prepare and file their financial results periodically and also complete the audit or review of such results.
- This aims to improve corporate governance as it will bring more transparency into affairs of closely held companies which are used by major shareholders of large public interest companies to divert funds through transactions that are not on an arm’s length basis.
- Benches of NCLAT: The Bill seeks to establish benches of the National Company Law Appellate Tribunal in order to ease their burden and decrease the pendency of cases.
- Penalties: It extends lesser penalties for small companies, one-person companies, and producer companies, in case of all offences which attract monetary penalties.
- Exclusion from listed companies: The Bill empowers the Central government, in consultation with the Securities and Exchange Board of India (SEBI), to exclude companies issuing specified classes of securities from the definition of a “listed company”.
- Exemptions from filing resolutions: The 2013 Act required companies to file certain resolutions with the Registrar of Companies (RoC). However, banking companies were exempted from filing such resolutions. This exemption has been extended to registered NBFC’s and housing finance companies by the proposed Bill.
- Corporate Social Responsibility (CSR): Under Section 135 of the Companies Act, 2013, companies have to spend 2% of their average net profits in the last three financial years, towards its CSR policy.
- The Bill exempts companies with a CSR liability of up to Rs 50 lakh a year from setting up CSR Committees.
- Further, the Bill allows eligible companies to set off the excess amount towards their CSR obligations in the subsequent financial years.
Companies (Amendment) Act, 2019
- It was enacted to consolidate and amend the laws relating to companies.
- It tightened the CSR compliance norms and ensured stricter norms for non-compliance of the company law regulations.
- It allowed companies to transfer their unspent CSR funds to a separate account, the same has to be spent within three financial years.
- In case, the money remains unspent, then it should be transferred to any fund specified in Schedule VII of the Act.
- It empowered the Registrar of Companies to initiate action for removal of a company’s name if it is not carrying out business activities as per the Companies Act.
- It provided for transferring of functions with regard to dealing with applications for change of financial year and shifting of powers for conversion from public to private companies from NCLT to the Central government.
- It provided more teeth to the Central government to deal with violators and reduced the burden on special courts and enabled the National Financial Reporting Authority (NFRA) to perform its functions through divisions and executive bodies.
A healthy business can only succeed in a healthy society. Thus, it is in the best interest of a company to produce goods and services which strengthen the health of the society along with the supportive efforts of the government to provide and create a conducive environment for the growth of the companies.
