CHANGES TO OFFENCES BROUGHT BY COMPANIES AMENDMENT BILL 2020
Author: Anmol Garg (Dr. D.Y. Patil Law College, Pune)
The Companies Act, 2013 replaced the earlier Companies Act, 1956 and made a number of changes in it. Companies Act is the Act that lays down the laws and procedures relating to incorporation, dissolution and general working of the companies along with the procedures for appointment and removal of employees, directors, etc. and punishment for the offences. Till now there have been a total of 104 amendments in total with the recent one being the Companies Amendment Act, 2020. A Company Law Commission was set up in September, 2019 under the chairmanship of Shri Injeti Srinivas with the two main objectives of decriminalization of the offences and improving the ease of doing business for businessmen in India. After a lot of consideration and finally formulating all of the recommendation made by the committee, the Companies (Amendment) Bill, 2019 was introduced in Lok Sabha by the Minister for Corporate Affairs, Ms. Nirmala Sitharaman, on March 17, 2020. It received Lok Sabha’s assent on 19th September, 2020 and of Rajya Sabha on 22nd September, 2020.
OBJECTIVE OF THE AMENDMENT BILL, 2020
The main objectives with which the amendment bill was introduced has been summarized below-
- To decriminalize some provisions of the Act, based on their gravity;
- To amend various provisions of the Act to decriminalize minor procedural or technical lapses under the provisions of the said Act, into civil wrong
- To constant Endeavour of the Government to facilitate Greater Ease of Living of Law-abiding corporates;
- To provide greater ease of living to corporates through certain other amendments to the Act
- Introduction of provisions for Producer Company in Companies Act, 2013
In short, the Amendment Bill had two main broad objectives of increasing the ease of living and ease of doing business and of decriminalizing various non-compoundable offences in case of defaults.
MAIN CHANGES IN RELATION TO OFFENCES
The Companies Amendment Act came at a time when the world was suffering through the global pandemic of coronavirus. The Amendment Act mainly revolves around decriminalization of Companies Act, 2013and lightening the strict penalties in case of defaults which can be determined objectively and which otherwise lack any element of fraud or of public interest. The main focus was also to improve the ease of doing business. The Companies Amendment Act (CAA) in total has introduced 66 changes. The ones which are specifically in relation to offences have been summarized below-
- In total, 45 sections saw a change in the amount of penalties which had been implemented. Out of them, in 10 sections, the penalty was omitted and in the rest 35 sections, certain changes were made.
- The bill omitted penalties from sections 48, 59, 66, 71, 284, 302,342,348,356 and 446. This was one of the major changes brought by the Amendment Act. For example, it removed the penalty for wrongful change in the rights of a class of shareholders.
- Another important amendment was that wherever a specific penalty was not mentioned, it imposed a penalty of 10,000 rupees which may extend to 1,000rupees for each day, if a default continues.
- It also removed imprisonment in certain cases like it removed imprisonment of 3years for the offence of wrongful buying back of shares by the company.
- In majority of sections, it reduced the maximum fine which was payable, for example, in case of failure to file the annual returns with the registrar, the maximum penalty was of 5lakhs rupees which was reduced to a maximum of 2lakh rupees.
- Further, in section 446 which applied earlier only to One Person Company and small company was extended to apply to producer and start-up company and the provision by which the penalty was reduced to 50% for the earlier was now further reduced for all four of them. In this section, it was reduced the maximum penalty for the company to 2lakh rupees and for the defaulting officer a penalty of 1 lakh rupees.
The Law Commission decriminalized certain offences under the Act with the reasoning that the presence of mens rea or the guilty intention in the criminal offences is the main point of difference between criminal and civil wrongs and the Act contained a number of offence which were clerical in nature and thus the Committee suggested that the Act should be amended in a way so as to be foremost concerned with classification of the offences into criminal and civil. Civil being the ones of technical and clerical nature and whose main objective is not to categorize all offences as criminal offence and give penalties accordingly.
The Law Commission further highlighted that due to multiplicity of laws in India, an offence was being punished under various legislature and it therefore suggested that the offences which are mentioned in the Company Act and also have other specialised Acts for them shall be removed from the Company Act so as to be covered almost entirely in one legislature only. As a result, 9 offences relating to non-compliance of the orders of the NCLT in relation of winding up of the companies, offences by shareholders, delay in payment of interest, reduction of share capital, etc. were removed so that they could all be covered under the Insolvency and Bankruptcy Code (IBC).
It further suggested to remove the penalty of imprisonment of 23 offences (compoundable offences) and reduced the monetary penalty which was to be levied on them as a ‘fine’ instead of as a ‘criminal fine’ as these sections left it on the adjudicating officer to decide the punishment in which the person could be sentenced to imprisonment or fine or both and also an amount was not fixed for the penalty and only a range was provided, which led to a lot of different opinions. Further in 22 offences, the Act changes or reduces the penalty in a similar manner from that of a ‘criminal penalty’ to a ‘civil wrong as a fine’. This was done mainly in offences relating to maintenance of records and filing of returns with the Registrar of Companies or ROC.
The Amendment Act, 2020 to the Companies Act brought about a number of changes which has had various implications. The Amendment Act not only reduced the penalties but also added a new provision for producer companies which till now was being governed by the 1956 Act and even introduced changes to CSR policy and the remuneration guidelines for independent directors in case of loss among others. It further even changed the composition of the National Company Law Appellate Tribunal (NCLAT), provided for maintenance of Periodical Financial Results and also for monitoring of the Indian Companies incorporated outside India for the first time. One of the most important amendment was that a change was made in the definition of Listed Company because of which a number of companies would become private.