Author - Dhanesh Rale
The Company Law Committee, which had been established to track the progress consequent towards the passing of Companies Act 2019, had presented its report to the Union Finance Minister Nirmala Sitaraman.
The Committee had been established in September 2019 through the Ministry of Corporate Affairs to decriminalize the provisions of the Companies Act, 2013 depending on their gravity as well as to take additional associated measures to furnish further Ease of Living for corporates in the nation. The Committee report was given on 18th November to the Union Minister of Finance and Corporate Affairs, Nirmala Sitharaman by the Secretary, Ministry of Corporate Affairs, Injeti Srinivas, who directed the Committee.
The Committee observed the progress made consequent towards the Companies (Amendment) Act, 2019, which had resulted in the decriminalization of 16 minor procedural and technical gaps under the Companies Act, 2013, into ‘civil wrongs’, as well as implemented a principle-based method to further eliminate criminality, relating to defaults which could be determined objectively as well as which, otherwise, lack the element of deception or does not include larger public interest. The alternative methods of imposing sanctions were also been explored as well as suggested by the Committee, in some cases
Following are the major recommendations which were made under Chapter 1 of the report:
In the first chapter of the report, the Committee had suggested amendments in 46 penal provisions, thus as to either eradicate criminality, or to limit the punishment to only fine, or to permit rectification of defaults by means of alternative methods, which shall lead to further de-clogging of the criminal justice system in the nation. The major recommendations of the Committee in Chapter 1 are:
- Re-categorizing of the 23 offences out of the 66 remaining compoundable offences in accordance with the Act, in order to be dealt with in the in-house adjudication structure in which these defaults shall be subjected to a penalty imposed by an adjudicating officer. Furthermore, the quantum of penalties recommended is lower than the quantum of charges currently provided in the Act.
- By omitting, overall, 7 compoundable offences; controlling punishment for 11 compoundable offences to only fine by means of eradicating provision for imprisonment as well as suggesting that 5 offences shall be dealt under alternative frameworks.
- Reducing the quantum of penalties with respect to 6 provisions, which were moved towards the in-house adjudication framework through the lately passed Companies (Amendment) Act, 2019
- The retention of status-quo relating to the non-compoundable offences
Chapter 2 deals with the Ease of Living for lawfully compliant corporates, and the following measures mentioned below were recommended:
- The power to exclude some classes of corporations from the definition of 'listed company', which mainly include a listing of debt securities, in consultation with Securities and Exchange Board of India (SEBI)
- Clarifying the jurisdiction of the trial court on the basis of place of commission of wrongdoing under Section 452, relating to wrongful withholding of property of a corporation by its officers and/or staffs
- Including the Part IXA (Producer Companies) of the Companies Act, 1956 provisions in the Companies Act, 2013
- Proposing benches of the National Company Law Appellate Tribunal
- The provisions regarding permitting payment of adequate remuneration towards non-executive directors for the inadequacy of profits, through aligning the same with the provisions for remuneration to executive directors in such matters
- Relaxing provisions associated with the imposition of higher additional fees under the third provision to Section 403(1).
- Extension of the applicability of Section 446B (which include lower fines for small corporations and one person corporations) to each and every provisions which attract financial penalties as well as extending the benefit towards producer corporations and start-ups as well.
- Excluding some corporations or body corporate from the applicability of Section 89 (which include a declaration of the beneficial interest in shares) as well as Chapter XXII (which include corporations incorporated outside India);
- Decreasing timelines in order to speed-up rights concerns under Section 62
- Extending exemptions from the filing of some resolutions to certain classes of non-banking financial concerns under Section 117 in consultation with the Reserve Bank of India
- Providing power in order to improve the thresholds which triggered the applicability of Corporate Social Responsibility provisions
- Non-levying of penalties for delaying in filing the annual returns as well as financial statements in certain cases
- On matters such as disqualification of directors, filing of appeals against the orders of Regional Directors, as well as banning of audit corporations, the Committee had advised that its recommendations would be looked at a later stage after directing a wider consultation.
Furthermore, the Committee while deliberating on many additional concerns felt that broader consultation shall be needed and recommended that the following would be considered in due course, at a later stage:
- Providing for an appeal against the orders of the Regional Directors before the NCLT after due examination;
- Exempting few private placement requirements for Qualified Institutional Placements (QIPs) following with the due consultation with SEBI;
- Reviewing provisions relating to the disqualification of directors after due consultation and examination;
- Reviewing provisions regarding the banning of audit firms after due consultation and examination;
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