The Indian Parliament has recently passed the Companies (Amendment) Act, 2020 (Amendment Act), which has also been notified, to further amend the Companies Act, 2013 (Act) in another attempt to further decriminalize and rationalize certain offences 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. In addition to decriminalization, certain other amendments have been introduced such as changes in definition of listed company, Corporate Social Responsibility (CSR) provisions, listing of securities abroad, periodical returns by unlisted companies, remuneration of independent directors and non-executive directors in the event of inadequacy of profits, and so on.
Decriminalization of various offences will help reduce the burden on the Indian judicial system by reducing criminal litigation pertaining to companies in India. The softened stance in relation to these offences will make India an attractive business destination and further promote ease of doing business.
The Amendment Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
The Amendment Act, inter alia, provides for the following:
- to empower the Central Government to exclude certain classes of companies from the definition of “listed company”, mainly for listing of debt securities, in consultation with the Securities and Exchange Board of India;
- to allow direct listing of certain class of securities by a class of public companies in permissible foreign jurisdictions as per rules to be prescribed and to empower the Central Government to exempt such class or classes of public companies from any of the provisions of chapter III, Part – I (Prospectus and Allotment of Securities), Chapter IV (Share Capital and Debentures), section 89 of the Act (Declaration in Respect of Beneficial interest in any Share), section 90 of the Act (Register of significant beneficial owners in a company) and section 127 of the Act (Punishment for Failure to Distribute Dividends);
- to reduce timelines for applying for rights issues under the Act;
- to enable the Central Government to exempt a class or classes of persons from complying with the requirements pertaining to a declaration of beneficial interest in shares under the Act (except sub-section (10) of section 89 of the Act, which pertains to what beneficial interest in a share includes);
- to extend exemptions to certain classes of non-banking financial companies and housing finance companies from filing resolutions passed to grant loans or give guarantees or to provide security in respect of loans in the ordinary course of their business;
- to empower the Central Government to provide rules for such class or classes of unlisted companies to prepare periodical financial results of the company, audit or limited review thereof and their filing with the Registrar of Companies within 30 days of completion of the relevant period with such fees as may be prescribed;
- to provide that the companies which have the CSR spending obligation up to INR 5,000,000 (Indian Rupees Five Million) shall not be required to constitute the CSR committee and to allow eligible companies under the Act to set off any amount spent in excess of their CSR spending obligation in a particular financial year towards such obligation in subsequent financial years;
- 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 incorporate a new Chapter XXIA in the Act relating to ‘Producer Companies’, which was earlier part of the Companies Act, 1956;
- to empower the Central Government to exempt any class of foreign companies or companies incorporated outside India from the provisions relating to companies incorporated outside India under Chapter XXII of the Act;
- to set up benches of the National Company Law Appellate Tribunal;
- to provide for payment of lesser monetary penalty by a start-up company, ‘Producer Company’, one person company or small company on failure to comply with provisions of the Act which attract monetary penalties; and
- to provide for a window within which penalties shall not be levied for delay in filing annual returns and financial statements (in certain cases).
Further, the Amendment Act will decriminalise various offences under the Act which, inter-alia, include amendments:
- to omit the punishment of imprisonment in relation to every person who is knowingly a party to the issue of prospectus in contravention of the provision relating to the matters to be stated in prospectus;
- to remove the penal provisions in case of any default in complying with the provisions relating to variation of shareholders’ rights;
- to remove the penal provisions in case of any default in complying with the order of the tribunal under the provisions pertaining to rectification of register of members; and
- to omit the punishment of imprisonment for the offence by a director of knowingly holding his or her directorship in the company after he/she has become disqualified.
The Amendment Act can be accessed through the following link: