Key takeaway from the Companies (Amendment) Act, 2020

 

The Government had introduced the Companies (Amendment) Bill 2020 in the Lok Sabha on March 17, 2020 and now the bill has been passed in the both houses of the Parliament. The key objective of the Amendment Act, 2020 is to decriminalise various offences, to declog National Company Law Tribunal (NCLT) Act and to provide further ease of doing business for corporates. The amendment legislation was approved by the Union Cabinet on March 4, 2020 and President passed it on Sept 28, 2020. The provisions in the Act will become effective from time to time after the issue a notification/s. The key amendments proposed in the Act are discussed hereunder:

 

1.        Decriminalization of offences:

 

The Act aims to decriminalize certain offences under the Companies Act, 2013 in case of defaults which can be determined objectively and which otherwise lack any element of fraud or do not involve larger public interest. The Amendment Act, 2020 is based on the Company Law Committee which was constituted with a view to decriminalize offences and provide ease of doing business to the corporates and other stakeholders. The Committee presented its Report in November, 2019 provided for de-clogging of penal provisions as under:

 

(a)    Re-categorizing of 23 offences out of 66 compoundable offences to an in-house adjudication framework wherein penalty will be levied by an adjudication officer

 

(b)    Omitting 7 compoundable offences

 

(c)    Limiting 11 compoundable offences to fine only (by removing imprisonment part

 

(d)    Recommending 5 offences to be dealt with in an alternative framework

 

2.        Amendment relaxing the CSR provisions

 

2.1  Set-off provision for CSR funds

 

The Act allows CSR applicant companies, which have spent an amount in excess of the requirement                                                          provided                                   under                                    section 135 of the Companies Act,  2013 to set off such excess amount out of their obligation in the succeeding financial years in such manner as may be provided by rules.

 

2.2  Relaxation from requirement of CSR committee

 

 

The Amendment Act has relaxed the rules for requirement of constitution of Corporate Social Responsibility Committee. It has proposed not the constitute CSR committee, in case the amount required to be spent under CSR does not exceed Rs. 50 lakh rupees.

 

2.3  Penalty on non-compliance of CSR provisions

 

The Act has explicated that if a company is making a default in complying with the CSR provision, then such company shall be liable to penalty of twice the amount required to be transferred by the company to the Unspent CSR account or Rs. 1 crore, whichever is less. In addition to that, every officer shall also liable to pay a penalty of 1/10th of the amount required to be transferred in Unspent CSR Account or Rs. 2 lacs, whichever is less.

 

3.        Monetary penalty in place of imprisonment and file for violation of RPT norms

 

The Act has amended provision of related party transactions in order to replace the punishment for imprisonment or fine with monetary penalty. It has been proposed to impose penalty of Rs. 25 lakh to listed company and Rs. 5 lakh to officer in default. At present 1 year imprisonment and maximum 5 lakh penalty has prescribed under the Companies Act, 2013.

 

4.        Power to exclude companies from definition of Listed Cos.

 

The Act empowers the Central Government to exclude certain class of companies from the definition of listed company, mainly for listing of debt securities.

 

5.        Remuneration to Independent Director

 

It has been proposed to include the provision for remuneration to non-executive director, including an independent director, if a company fails to make profits or makes inadequate profits in a financial year.

 

6.        Setting up new NCLAT benches

 

The Act inserts a new section to provide for constitution of Benches of the Appellate Tribunal and related provisions.

 

7.        Rectification of Name of Company

 

The Amendment Act provides that if a company has been registered inadvertently with a registered trade mark of a proprietor, and the name is too identical or resembles an existing trade mark, such company shall have to change its name within a period of 3 months from the issue of direction by Central Government. Earlier the time limit allowed for changing name was 6 months.

 

 

8.        Exemption to NBFC & Housing Finance Cos. form filing resolutions

 

The Amendment Act 2020 has extended exemptions to certain classes of registered Non-banking financial companies and Housing Finance Companies from filing Form MGT-14 for filing resolutions and agreements with the Registrar of Companies under Section 117 of the Companies Act, 2013. Currently only Banking companies are exempted from filing resolutions with RoC.

 

9.        Lesser penalty for small companies

 

Under the Amendment Act, there would be provision for lessor monetary penalty for start-up companies, Producer Companies, One Person Companies or small companies on failure to comply with provisions of the Companies Act, 2013 which attracts monetary penalties. The Amendment Act provides that penalty shall not be more than one-half of the penalty specified in such provisions subject to a maximum of Rs. 2 lakh in case of a company and Rs. 1 lakh in case of an officer who is in default.

 

10.          Reduction in time line for right issue

 

In order to speed up the process, the Act has reduced the timelines for applying right issue as specified under section 62 of the Companies Act, 2013. At present, 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. Therefore, it has proposed to reduce the exiting timeline which may be prescribed later.

 

11.          Removal of restriction on appointment of Judicial & Technical members

 

The Amendment Act removes the restriction on the number of Judicial and Technical members that the Central Government may appoint in the Appellate Tribunal.

12.         Insertion of provisions relating to ‘Producer Company’ in the 2013 Act

 

At present, provisions relating to ‘Producer Company’ continue to be in Companies Act, 1956. These provisions have been brought in Companies Act, 2013 itself. Chapter XXIA [containing sections 378A to 378ZU] has been inserted in Companies Act, 2013. Corresponding provisions in the 1956 Act will be deleted after these are inserted in Companies Act, 2013.