Company Law Committee set to decriminalize 46 penal provisions

A government-appointed high-level panel has recommended amendments to 46 provisions under the Company Law to reduce or remove criminality and relax penal measures.

The Government had set up the Company Law Committee (CLC) under the Chairmanship of Corporate Affairs Secretary Injeti Srinivas to decriminalize the provisions of the Companies Act, 2013, based on the gravity of the offences and to take other concomitant measures with a view to provide further ease of living for corporates in India. The Government had earlier, through the Companies (Amendment) Act 2019, decriminalized 16 minor procedural or technical lapses and had categorized them as ‘civil wrongs’.

The CLC has recommended changes to the 46 penal provisions so as to remove criminality thereby restricting punishment to only fine, or to allow rectification of defaults through alternative methods. Injeti Srinivas submitted the report to the Finance Minister Nirmala Sitharaman.

If implemented, the move is expected to lead to further de-clogging of the criminal justice system in the country. Indications are that the government will move an amendment Bill for this purpose in the ongoing Winter Session of Parliament.

The report recommended re-categorizing 23 offences out of the 66 remaining compoundable offences under the Companies Act, to be dealt with in the in-house adjudication framework wherein these defaults would be subject to a penalty levied by an adjudicating officer. In addition, the quantum of penalties recommended are lower than the quantum of fines presently provided in the Act.

Out of the afore-mentioned 23 offences, there are two Category A offences, which pertain to non-compliance of the orders of the Central Government, National Company Law Tribunal (NCLT), or Registrar of Companies. For both offences, a fine of Rs. 20,000 will be levied, up to Rs. 3 lakh.

There are three Category B offences, which have to do with default in respect of maintenance of certain records in the registered office of the company. Here, the penalty has been recommended to be in the range of Rs. 50,000 to a maximum of Rs. 5 lakh.

Three Category C offences, which are defaults on account of non-disclosures of interest of persons to the company, which vitiates the records of the company, have also seen penalties reduced. The other offences for which the committee has recommended reduced penalties include two Category E offences (technical defaults relating to intimation of certain information by filing forms with the Registrar of Companies or in sending of notices to the stakeholders), and 11 Category F offences (defaults involving substantial violations which may affect the going concern nature of the company, or are contrary to the larger public interest).

The CLC has now come up with as many as 12 recommendations as part of providing Ease of Living for law abiding corporates. The recommendations include inter alia power to exclude certain class of companies from the definition of ‘listed company’, mainly for listing of debt securities, in consultation with SEBI; including the provisions of Part IXA (Producer Companies) of the Companies Act, 1956 in the Companies Act, 2013.

The CLC has also proposed provisions for allowing payment of adequate remuneration to non-executive directors in case of inadequacy of profits, by aligning the same with the provisions for remuneration to executive directors in such cases.

The recommendations also include excluding certain companies/bodies corporate from applicability of Section 89 (declaration of beneficial interest in shares) and Chapter XXII (companies incorporated outside India); reducing timelines so as to speed up rights issues under Section 62; extending exemptions from filing of certain resolutions to certain classes of non-banking financial companies under Section 117 in consultation with Reserve Bank of India; non-levy of penalties for delay in filing the annual returns and financial statements in certain cases.