Amendment to the Companies Act, 2013 (‘the Act’) seems to be a routine activity of the Government. The Act was amended by the Companies Amendment Act, 2015, 2017, 2019 and now, in 2020 (as proposed). Every time, the object of the amendment is different – from the ease of doing business to ease of living for corporates.
With the Government’s objective of facilitating greater ease of living to law-abiding corporates, it had constituted Company Law Committee (‘Committee’) on September 18, 2019. The overall objective of the Government and the Committee was to decriminalize some more provisions of the Act based on their gravity and to take other necessary measures to provide further ease of living for corporates in the country. The Committee submitted its report in November 2019.
Based on the recommendations of the Committee and an internal review by the Government, the Companies Amendment Bill, 2020 proposed amendment to various provisions of the Act, which includes: (i) Decriminalisation of minor procedural or technical lapses under the provisions of the said Act, into civil wrong, (ii) Considering the overall pendency of the courts, a principle-based approach was adopted to further remove criminality in case of defaults. In addition, the Government also proposes to provide greater ease of living to corporates through certain other amendments to the Act.
Following are the key highlights of the Companies Amendment Bill, 2020:
- In consultation with SEBI, the Central Government would be empowered to exclude a certain class of companies from the definition of ‘listed company’ mainly for a listing of debt securities i.e. generally when the shares of a company are not listed but debentures of such company are listed on the recognized stock exchange,
- Separate Chapter on ‘Producer Company’ is proposed to be introduced in the Act,
- Setting up of Benches of the National Company Law Appellate Tribunal (NCLAT),
- Section 149 and section 197 of the Act is proposed to be amended for the inclusion of the provisions allowing payment of adequate remuneration to non-executive directors (including the independent director) in case of inadequacy of profits, by aligning the same with the provisions for remuneration to executive directors in such cases;
- Relaxing the provisions relating to charging of higher additional fees for default on 2 or more occasions in submitting, filing, registering or recording any document, fact or information as provided in section 403 of the Act;
- Extending the applicability of section 446B of the Act (relating to ‘Lesser penalties for small companies & OPCs’), to all provisions of the Act which attract monetary penalties and also extend the same benefit to Producer Companies and start-ups;
- Exempting any class of persons from complying with the requirements of section 89 of the Act (relating to ‘Declaration of the beneficial interest in shares’) and exempt any class of foreign companies or companies incorporated outside India from the provisions of Chapter XXII relating to companies incorporated outside India;
- Reducing the timelines for applying for rights issues so as to speed up such issues under section 62, i.e. the criteria that the rights issue should be open for minimum 15 days would be eliminated;
- Extending exemptions to certain classes of NBFCs and housing finance companies from filing certain resolutions (in respect of resolution to grant loans, or give guarantee or provide security in respect of loans) with the Registrar of Companies;
- Providing that the companies which have CSR spending obligation up to Rs. 50 lacs rupees shall not be required to constitute CSR Committee and to allow eligible companies u/s 135 of the Act to set off any amount spent in excess of their CSR spending obligation in a particular financial year towards such obligation in subsequent financial years;
- Providing for a window within which penalties shall not be levied for delay in filing annual returns and financial statements in certain cases;
- Providing for specified classes of unlisted companies to prepare and file their periodical financial results;
- Allow direct listing of securities by Indian companies in permissible foreign jurisdictions.
Though the thrust of the Companies Amendment Bill, 2020 is to decriminalize some more provisions of the Act and provide further ease of living for corporates, the amendments are not adequate for India Inc. Firstly, the Government should provide clarity on the provisions relating to Significant Beneficial Ownership (SBO) provisions and Rules made thereunder. There seems to be an apparent disconnect between the provisions of the Act and the Rules. At the same time, the Government has been differing from the implementation of the SBO provisions. There is a need to have another round of all-inclusive and holistic amendments to the Act from the perspective from interpretation issues in definitions, its application, day – to – day compliances, approval process, and disclosures. On June 5, 2015, the Ministry of Corporate Affairs had issued a Notification exempting private companies from the compliances of certain provisions of the Act subject to the satisfaction of certain conditions. Certain exempted provisions have been amended by the Companies (Amendment) Act, 2017 and there is a lack of clarity about the applicability and exemptions of such provisions. The amended provisions relating to a private placement of securities (under section 42 of the Act as substituted by Companies (Amendment) Act, 2017) also requires further amendments from the perspective of ease of doing business. The provisions relating to related party transactions and loans to directors would also require some review from the perspective of approval mechanism, compliance procedures and disclosures. There could be ease of living for corporates if the Government also provides clarity on disqualification of directors, the vacation of office of directors, activation/deactivation of Director Identification Number (DIN), etc. Similar to LLPs, the Government should also introduce a Company Law Settlement Scheme for filing pending annual accounts, annual returns and e-Forms for the companies. From the perspective of adjudication of penalties, the Government should prescribe a monetary parameters/factors for levying penalties. Presently, there is no parameter and the powers to the Adjudicating Officers are quite wide.
In my view, the amendments by Companies (Amendment) Bill, 2020 are not adequate and therefore, the Companies Act is set for another round of amendments!
Gaurav Pingle is a Practising Company Secretary and a visiting faculty for ‘Company Law’ and ‘Investment and Securities Laws’ at ILS Law College, Pune. He has authored books on Companies (Amendment) Act, 2017 and Related Party Transactions. His areas of practice are Corporate Laws, Corporate Compliance Management, SEBI Listing Regulations, and Transaction Advisory Services. He conducts internal training programs and workshops for companies, law firms, CA firms & CS firms on topics relating to Corporate Laws and Corporate Governance. He religiously writes articles and columns on the current case laws, latest happenings in Corporate Laws and articulates his views, which are published in leading professional and business journals. He also pens various dedicated columns.