The Companies (Amendment) Bill, 2020 (“Bill”) was introduced in Lok Sabha. The amendments proposed to the Companies Act, 2013 (“Act”) were stated in this bill. Company Law Committee (“Committee”) was constituted to decriminalise provisions of the Act based on their gravity and provide for ease of living for corporates in the country. This Committee submitted its report in November 2019. After the review by the government and based on the recommendation of the Committee, the bill was introduced.
It mainly provides for the decriminalisation of offences which do not have an element of fraud or do not involve the larger public, remuneration to the independent director and changes in corporate social responsibility clause. It also amends rules relating to listed companies and public offer, a new chapter on producer companies and setting up new benches in National Company Law Appellate Tribunal (NCLAT). The proposed amendments are stated in detail below.
Decriminalisation Of Offences
In the Act, there are many offences for which the punishments are imprisonment or fine or both. Thus, these provisions awarding imprisonment to directors or representatives of the company or persons in default contained a criminal element. This bill proposes to decriminalise punishment which means to remove the criminal part from these punishments and make them of civil nature. Therefore, in many provisions where there is a punishment of imprisonment, the bill proposes to omit it totally and provide the punishment with/ in the form of fines only. There is a decrease in the penalty payable for offences in many provisions. It lays down for the maximum amount payable for an offence in many provisions of the Act. The omission of the punishment of imprisonment is for offences which do not have an element of fraud in them.
The bill provides that, if any company has listed its shares or intends to do with the consultation of Securities and Exchange Board of India, then the Central Government will exclude these companies from the definition of the listed company. The Central Government by notification can also exempt any class of such private companies relating to declaration of a beneficial interest in shares. This amendment is primarily for private companies having debt security listed on the stock exchange. Further, the bill provides for public companies to list its securities in stock exchanges of a permissible foreign jurisdiction. It also facilitates the Central Government to require a class of unlisted companies to prepare a financial report on a periodical basis.
Corporate Social Responsibility
The Act provides for corporate social responsibility by companies which have a specific amount of turnover or net worth. It also states the amount to be spent by these companies on corporate social responsibility for the financial year. The bill provides for including the clause that if the company spends an excess amount, then it can set off such excess amount in the subsequent financial years. The Act provides for imprisonment to every officer in default of this section along with fine. The bill proposes to remove the punishment of imprisonment and provides revised penalties. The bill proposes that for any fault in this section, the company shall transfer twice the amount required to be given by the company to the fund specified in Schedule VII of the Act or Unspent Corporate Social Responsibility Account. It provides that where the amount spent by a company does not exceed fifty lakh rupees, there is no need for the formation of a Corporate Social Responsibility Committee and the Board of Directors discharge the functions of the Committee.
Remuneration Of Directors (Non-Executive)
The Act provided for receiving fees as remuneration in case of no profits or inadequate profits to the company. The bill provides for non-executive Directors, including Independent Directors, to receive remuneration in such a case, exclusive of any fees payable to him for attending meetings of Board or Committee.
The bill introduces a whole new chapter of producer companies after Section 378 of the Act as Chapter XXIA. This chapter consists of Section 378A to Section 378ZU, which deals with producer companies. It is on similar lines of producer companies stated in Companies Act,1956. It provides for definitions relating to producer companies, its incorporation, management, general meetings, share capital, accounts and audit, loan to members and investment, amalgamation, merger and division, resolution of disputes, penalties and miscellaneous provisions. It also provides for re-conversion of the producer company to the inter-state co-operative society.
National Company Law Appellate Tribunal (NCLAT)
The bill proposes to expand the benches of the NCLAT. Under the Act, the total number of people in NCALT consisting of the Chairperson, Judicial and Technical members is not to be exceeding eleven. This restriction of eleven members is removed in the bill. Further, it provides that Chairperson of NCLAT can constitute benches which perform the function of NCLAT. It should consist of at least one Judicial Member and one Technical Member and sits at New Delhi to hear appeals.
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