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Insolvency and Bankruptcy Code to Farm Bill 2020, it has been an Year for Amendments for the country this year and it’s all about enacting new provisions with an aim to ease of the business process according to the government.

Adding to the list is now the Companies Act, which after being passed in both the houses of Parliament has also got the President assent as well and Companies Amendment Bill 2020 now offers unplugging of 46 Penal Provisions.

First quick backgrounds check...

Known as CAB 2020, it is based on the recommendations of the Company Law Committee, under the Chairmanship of Secretary, Ministry of Corporate affairs Mr. Anjeti Srinivas.

Constituted in September 2019 it was formed with a view to decriminalize certain provisions of the act, to provide companies with an opportunity of ease of doing business.

The Committee submitted its report in November 2019 and recommended to back flush 46 penal provisions, which were earlier imposing certain restrictions to corporate and other stake holders in carrying out their business operations smoothly.

The 46 penal provisions which are now amended can be broadly classified under the following heads:

  • Re-categorisation of 23 offences out of 66 Compoundable offences: CAB 2020 has re-categorised several offences under the act to an in house adjudication framework, in other words these offences are now punishable with penalty vis-a-vis imprisonment and fine earlier.
  • It has omitted 7 Compoundable offences: Hence the law cannot prescribe punishment for those offences anymore.
  • Has limited 11 Compoundable offences to fine only: By removing the punishment part from the law.
  • Has recommended 5 offences to be dealt with alternate framework- Hence the representatives of the defaulting companies do not have to be physically present in front of the adjudicating officer anymore.

OBJECTIVE BEHIND THE REMOVAL OF THESE PENAL PROVISIONS:

The major objective behind these changes is to decriminalize offences where there is no mala fide intent on the part of the company or institution.

In other words, in case there is a lack of element of fraud or does not involve large public interest, then these amendments aim to make certain offences free from criminality.

It has been done with the objective of improving the ease of doing business for the corporate sector and decriminalizes offences, by classifying them as civil wrongs instead of warranting jail.

De-criminalization of the compoundable offences under the act will certainly lead to reducing the work load of the courts and will provide companies with much better environment for smooth functioning of their business operations.

Also the main purpose of abolishing the Fines is that Fines are usually used in the context of Criminal Law, where either a Court or a Tribunal, can punish a company or convict its employee by either imposing a punishment or a fine upon him but in case of a penalty, it is generally a punishment for breaking a rule of law and can be imposed by the Registrar of Companies also. It does not require the involvement of a Court.

Thus the bill marks 3 major penal changes:

  • Removes the Penalty for certain offences
  • Removes Imprisonment in certain offences.
  • Reduces the amount of fine payable in certain offences

Other changes brought by CAB 2020 are as follows:

  • Lowering the amount of penalty for Small Companies and Start Ups- As per the new provision; one person companies (companies with only one member) or small companies are now liable to pay only up to 50% of the penalty for certain offences, like failing to file annual returns.
  • The bill adds a New Chapter in the Act for Producer Companies- Producer companies are engaged in the production, marketing and sale of agriculture produce.
  • The bill empowers the Central Government to exclude certain companies from the definition of Listed Companies, but of course in consultation with SEBI.
  • It also enables the Central Government to allow certain classes of the public companies to list classes of securities in Foreign Jurisdiction.
  • In order to make the compliance easier, the act makes special provision for remuneration to Non Executive Directors of a company- If a company has inadequate or no profits in a Year, the Act makes special provision for the provision of payment to the Executive Directors of the company, including Independent Directors as well.
  • CAB 2020 empowers the Central Government to exclude any class of persons from the capacity of a shareholder who exercises a good control over the company- The company is required to maintain a separate register for such shareholders and the government can exclude such persons if found necessary in the interest of the public.
  • The Act also requires the company to file certain resolutions with the Registrar of the Companies- such as Borrowing Money or Granting Loans. Although the Banking Companies are exempted from such resolutions. This exemption is also extended to Registered Non Banking Financial Companies and Housing Finance Companies.
  • CAB 2020 also makes the companies obligatory in their contribution towards the Corporate Social Responsibility (CSR) - Under the amended provision, companies with a net worth or profits above a specified amount are required to set up a CSR committee and spend 2%of their average net profits of the last three financial years towards this committee. Companies which are already contributing towards the CSR liability of up to Rs.50 Lac a year are exempted from this provision.
  • For the unlisted companies, it is required under the bill to prepare and file periodical financial results and to complete the audit or review of such results.
  • Also under the amended provisions, new branches of National Law appellate Tribunal shall be established.

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