The Companies (Amendment) Bill, 2020

A.    Introduction

Corporate laws serve as the foundation of commercial regulations as they govern corporate entities in the market by regulating how they function and ensuring that they stand accountable to their shareholders and lay down corporate governance norms. India has witnessed a drastic shift in its corporate governance framework in the last few decades.

Often, the enactment of The Companies Act, 2013 is said to be one of the most significant legal reforms, which aimed to bring the Indian system in tune with the global framework. The Act and various other legal reforms were undertaken since then have promoted the formation of a concrete corporate structure in the country for conducting business and making such conduct of business easier.

B.    Background

In its efforts to facilitate ease of doing business, the government of India had constituted a ‘Company Law Committee’ on September 18, 2019. This Committee was headed by Mr. Injeti Srinivas, who is a Secretary of MCA. This Committee consists of representatives from the Ministry of Corporate Affairs, professional institutes, industry chambers, and other legal fraternities. The main aim of setting up this Committee was to give recommendations regarding the decriminalization of some provisions of the Companies Act, 2013, and facilitate ease of doing business.

The Committee submitted its report on November 14, 2019. Based on this report, the Finance Ministry proposed some significant amendments in the Companies Act, 2013 under the Companies Amendment Bill, 2020. For discussion, this bill was presented in Lok Sabha on March 17, 2020. the Lok Sabha then passed it on September 19, 2020, and Rajya Sabha on September 22, 2020. The Companies (Amendment) Act, 2020, received the assent of The President of India on September 28, 2020.

C.    What has Changed

The key amendments brought by The Companies (Amendment) Bill, 2020 are:

1.    Decriminalisation/ Reduction in Penalties 

The bill makes three kinds of changes in the area of penalties and offenses:

a.    Penalties from certain offenses have been removed. (e.g., penalties for such changes in the rights of a class of shareholders made in violation of the Act have been removed.

b.    Imprisonment in case of certain offenses has been removed. (e.g., the punishment of imprisonment for a company buying back its share in contravention to the Act has been removed.

c.    Fines for certain offenses have been reduced. (e.g., the maximum fine for failure to file annual returns with the Registrar of Companies was five lakh rupees, which has been reduced to two lakh rupees  

2.    Easing the framework of Corporate Social Responsibility 

Those companies, who have spent more than what was prescribed under the Act, can set off such excess amounts spent in succeeding fiscal years, as prescribed by the Central Government. Further, it states that, for those companies that are not required to spend more than 50 lakh rupees towards CSR, the need to constitute a CSR committee has been exempted. The Board of Directors may discharge the duties of such a committee.

3.    A new definition for A Listed Company under Section 2 (52)

The central government is empowered to exempt particular classes of companies and securities from being considered as listed companies. This Amendment aims to ease the SEBI(LODR) prescribed rigorous compliances and procedural requirements.

4.    A new chapter on producer companies added

The Amendment exempts producer companies from the redundant provisions of the Companies Act, 1956 that continued to apply. It adds a new chapter with similar provisions that are tailor-made for producer companies. 

5.    The timeline for the right issue is reduced

The Amendment reduced the existing time to 15 days for the right issue. It also empowers the central government to prescribe a timeframe that can be less than 15 days for the offer period of the right issue. This will result in faster access to funds by companies without requiring the approval of a majority of shareholders. 

6.    NCALT benches constituted

The Amendment establishes new benches of NCALT, which shall sit in New Delhi and other prescribed places.

7.    Provisions prescribed for payment of Remuneration to Non-Executive Directors even in case of Inadequacy of Profits

The Amendment provides for entitlement of independent and non-executive directors to receive remuneration up to the extent of a permissible limit under the Act, in case a company has no profits or in case of inadequacy of profits.

8.    Permitting the listing of Securities on Foreign Stock Exchanges

The Amendment adds to the pre-existing Section 23, for a certain class of public companies which as incorporated in India, permission to issue a class of securities to be listed on a stock exchange in a permissible foreign jurisdiction, without mandatory listing in India.

9.    Filling of resolution under section 117 exempted

The Amendment extends exemption from filing the resolutions on granting of loans or giving guarantee or securities for loans in the ordinary course of business to registered non-banking finance companies and housing finance companies.

10.    Addition of provisions for periodic financial results for unlisted companies 

The Amendment empowers the Central government to make it mandatory for a class of unlisted companies to file periodical financial results and get an audit or review.

D.    Our Word

It can be said that decriminalization of insignificant offenses regarding procedural requirements, having no negative impact on the public's interest at large, will aid in easing the burden on corporates from being criminalized that are results of inadvertent lapses and minor non-compliances with no fraudulent intentions.

To realize the extent of effectiveness of the Act in respect to overseas listing, beneficial ownership, and other aspects, we need to wait till Central Government notifies and prescribes the rules. It can be said that this Amendment is a progressive step towards India’s goal to improve the ease of doing business in its territory.

Author: Shrishti Zaveri