Ease of doing business is one of the important aspect for increasing entrepreneurship. For the purpose of updating the entire company law, Dr JJ Irani committee is formed and a modern company law is enacted as Companies Act 2013. There were amendments happened over years, for updating and upgrading the company law into dynamic environment. The Government has again came out with another set of amendment by way of Companies (Amendment) Bill, 2020.
The bill is introduced in the Lok Sabha by the finance minister March 17, 2020. After lot of deliberations the bill was passed on September 19, 2020 in the Lok Sabha, Passed in the Rajya Sabha on 22nd September, 2020.
The main moto of the amendment was to decriminalize various non compoundable offences in case of defaults, but not involving frauds, taking out imprisonment provision for various offences.
If we look on to the latest amendment, the focus was on two aspects, first was on to decriminalize various non compoundable offences in case of defaults and secondly to increase the ease of doing business.
For the purpose of making necessary changes to the company law a committee was formed under the chairmanship of Shri Injeti Srinivas in September 2019. The main objective of the committee was to give suggessions on decriminalizing offences and increasing ease of doing aspect of business.
Important provisions of the Amendment are as follows.
- Decriminalise certain defaults which are considered as offences but lack any element of fraud or donot involve larger public interest.
- Amendment to Section 62 of Companies Act , relates to right issues, to reduce timeline for applying right issues, so that the process time can be reduced.
- Inserting a provision for exempting any class of persons from complying with the requirements of section 80, relating to declaration of beneficial interest in shares.
- There was a long standing demand for a provision for payment to non executive directs in line with the payment of executive director, in case of inadequacy of profits. A new provision is made.
- Listed companies have many procedural and compliance requirements. The amendment act empower the Central Government to exclude, after consulting with SEBI, certain class of companies from the definition of listed company, mainly for listing debt securities.
- Exemption under section 117 – certain class of Non Banking Finance Companies and housing finance companies exempted from filing certain resolutions.
- As the Companies Act 2013, was not having any provision for Producer companies, it was still under Companies Act 1956. A new provision is inserted as a new chapter XXIA.
- To relax provisions relating to charging of higher additional fees for default on wo are more occasions in submitting, filing, registering or recording any document, fact of information as per Section 403.
- To provide for exempting the provision for Corporate Social Responsibility committee requirements for companies with spending obligation up to 50 lakhs.
- To allow eligible companies under section 135 to set off any excess money spend on CSR project, from obligations in subsequent years.
- To provide for a window within which penalties shall not be levied for delay in filing annual returns and financial statements in certain cases.
- Allowing provision for eligible Indian companies to list their securities in permissible foreign countries as per rules.
Section 2(52): Definition of “Listed Company”
Exclusion of such listed companies and companies with the intention of getting listed such class of securities from the category of listed companies.
Section 16: Rectification of name
If a company was registered inadvertently with a registered trade mark of a proprietor, and the name is too identical or resembles an existing trade mark, such company has to change its name within 3 months from the issue of CG’s direction instead of 6 months timeline provided earlier.
Further, with a view to decriminalize the offence, if committed by a company, in case of default in this section, the CG shall allot a new name as per the directions of the ROC to the company and the ROC shall issue a fresh Certificate of Incorporation. Although the company shall not be prevented from changing its name subsequently.
Section 62: Further issue of shares with respect to Right issue
The time period for providing offer letter to the existing shareholders under rights issue process is 15 days to 30 days, beyond which the offer is deemed to be declined. It is proposed to lay down such other time period which may be less than the timelines prescribed currently.
Section 89: Beneficial shareholding
Under the Companies Act, 2013, if a person holds beneficial interest of at least 10% shares in a company or exercises significant influence or control over the company, he is required to make a declaration of his interest to the company. The company is required to note the declaration in a separate register. The Companies (Amendment) Bill, 2020 empowers the central government to exempt any class of persons from complying with these requirements if considered necessary in public interest.
Section 117: Resolutions and agreements to be filed
The section requires filing of resolutions with the Registrar of Companies. It currently exempts banking companies which are providing loan, guarantee, and security in connection with loan in its ordinary course of business from filing the resolution in e-Form MGT- 14. Such exemption has been extended to registered NBFC and HFCs.
Section 129A: Periodical financial results (newly inserted)
The Central Government shall require such class or classes of companies to a) Prepare periodical financial results, b) Obtain approval of the Board of Directors, c) Complete limited review of such periodical financial results, d) File a copy with the ROC within 30 days of completion of the relevant period.
Section 135: Corporate Social Responsibility
Under the Act, companies with net worth, turnover or profits above a specified amount are required to constitute CSR Committees and 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, companies which spend any amount in excess of their CSR obligation in a financial year can set off the excess amount towards their CSR obligations in subsequent financial years.
Section 149: Company to have Board of Directors (Independent Directors)
The existing provisions provide that Independent Directors are not subject to stock options and are entitled to sitting fees, profit related commission and reimbursement of expenses incurred in attending meetings as per Section 197(5).
The amendments provide for a new insertion and it states that an Independent Directors and Non-Executive Directors may receive any other sort of remuneration, excluding the aforesaid, in terms of Schedule V where there is no profit or inadequate profits in the company.
Section 197: Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits
Section 197(3) has been aligned with Section 149(9) to include Non-Executive Directors and Independent Directors within the ambit of remuneration payable as per Schedule V in case of no profits or inadequate profits.
Periodic financial results for unlisted companies
The Companies (Amendment) Bill, 2020 empowers the Central Government to require classes of unlisted companies (as may be prescribed) to prepare and file periodical financial results, and to complete the audit or review of such results.
Benches of NCLAT
The Companies (Amendment) Bill, 2020 seeks to establish benches of the National Company Law Appellate Tribunal. These shall ordinarily sit in New Delhi or such other place as may be notified.
Direct listing in foreign jurisdictions
The Bill empowers the central government to allow certain classes of public companies to list classes of securities (as may be prescribed) in foreign jurisdictions.
Under the 2013 Act, certain provisions from the Companies Act, 1956 continue to apply to producer companies. These include provisions on their membership, conduct of meetings, and maintenance of accounts. Producer companies include companies which are engaged in the production, marketing and sale of agricultural produce, and sale of produce from cottage industries. The Bill removes these provisions and adds a new chapter in the Act with similar provisions on producer companies.
Changes to offences
The Companies (Amendment) Bill, 2020 makes three changes. First, it removes the penalty for certain offences. For example, it removes the penalties which apply for any change in the rights of a class of shareholders made in violation of the Companies Act, 2013.
It shall be noted that where a specific penalty is not mentioned, the Companies Act, 2013 prescribes a penalty of up to Rs.10,000 which may extend to Rs. 1,000 per day for a continuing default.
Second, it removes imprisonment in certain offences. For example, it removes the imprisonment of three years applicable to a company for buying back its shares without complying with the Companies Act, 2013.
Third, it reduces the amount of fine payable in certain offences. For example, it reduces the maximum fine for failure to file annual return with the Registrar of Companies from five lakh rupees to two lakh rupees.
Further, under the Companies Act, 2013 One Person Companies or Small Companies are only liable to pay up to 50% of the penalty for certain offences (such as failing to file annual return).
The Companies (Amendment) Bill, 2020:
- extends this provision to all producer companies and start-up companies,
- extends this provision to apply to violation of any provision of the Companies Act, 2013 and
- limits the maximum penalty to two lakh rupees for the company and one lakh rupees for a defaulting officer.
Thus, the Companies (Amendment) Bill, 2020 gives effect to decriminalization of certain offences under the Companies Act, 2013 and also provide greater ease of doing business for companies and citizens as the compliance related issues are being made simpler.