Centre decriminalises minor violations under Companies Act

In another set of reform measures announced on May 17, Finance Minister Nirmala Sitharaman said minor technical and procedural defaults under the Companies Act will be decriminalised.

The decriminalised violations include shortcomings in Corporate Social Responsibility (CSR) reporting, inadequacies in board report, filing defaults, delay in holding of annual general meetings.

According to the Finance Minister, majority of the compoundable offences sections will be shifted to Internal Adjudication Mechanism (IAM) and power of regional directors for compounding have been enhanced. As a result of the amendment, 58 sections will be dealt under IAM as compared to 18 earlier.

The government will drop seven compoundable offences and five offences will be dealt with under alternative framework.

She noted that amendments will de-clog the criminal courts and National Company Law Tribunals (NCLT).

The Minister also announced that the no fresh insolvency case will be admitted for the next one year in view of the coronavirus pandemic. Further, the government will also set up a special insolvency framework for MSMEs under Section 240A of the Insolvency of Bankruptcy Code. This has been a long pending demand of the industry and economists.

The threshold for insolvency will also be raised to Rs. 1 crore from the current Rs. 1 lakh which will be supportive for the MSME sector. The decision comes under the fifth and the final tranche of Rs. 20 lakh crore economic package announced by Prime Minister Narendra Modi.