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.
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