In a breather to corporates and to bring greater ease of doing business, the Companies Bill has decriminalised 48 sections by removing or reducing penal provisions, omitting imprisonment for various offences which were considered procedural and technical in nature.
The bill, passed on Saturday in the Lok Sabha, comes at a time when companies are reeling under stress due the coronavirus (Covid-19) pandemic. Finance and Corporate Affairs Minister Nirmala Sitharaman said decriminalisation of various provisions under the companies law will also help small companies by reducing the litigation burden on them.
The bill has proposed doing away with imprisonment for 9 offences which relate to non-compliance with orders of the national company law tribunal (NCLT). These include matters relating to winding-up of companies, default in publication of NCLT order relating to reduction of share capital, rectification of registers of security holders, variation of rights of shareholders and payment of interest and redemption of debentures.
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In case of CSR, if a company fails to transfer the amount to a specified fund, it shall be liable to a penalty twice the amount required to be transferred or Rs 1 crore whichever is less. Also, every officer of the company, which is in default, will have to pay a penalty of one-tenth of the amount required to be transferred by the company instead of the earlier provision of three years imprisonment and maximum fine of Rs 5 lakh.
“These amendments are in furtherance of the objective of CAB 2020 to eliminate subjectivity in the adjudication process - which exists in such cases because the Act provides the adjudicating officer with the power to order either a punishment of imprisonment or impose a criminal fine, or both,” Pavan Kumar Vijay, founder, corporate professionals, said.
The bill has also omitted the punishment of imprisonment prescribed under Sections 26(9) and 40(5) of the Act relating to the provision of public offering of securities by a company such as matters to be stated in the prospectus. However, the quantum of the monetary penalty under each of these provisions remains unchanged.
Imprisonment for non-compliance with procedure for buy-back prescribed under Section 68 of the Act and also for various lapses in financial statements of the company are also to be done away with, according to the bill.
Government has also rationalised several penalties under the Act such as for delay in filing the financial statement with the registrar of companies.
Corporate affairs ministry has also decriminalised sections where the complainant can enter into a compromise, and agree to have the charges dropped against the accused.
Such offences include for instance, default with respect to the section 8 (11) which deals with Formation of companies with charitable objects, section 26 (9) regarding matters to be stated in the prospectus. The punishment in these cases includes a fine as well as provision for imprisonment for the company’s directors or other individuals involved.
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Under the new penal provision is if any person fails to make a declaration of significant beneficial ownership the minimum penalty has been reduced by half to Rs 50,000 and in case of continuing failure Rs 1,000 each day up to a maximum level of Rs 200,000.
In the last amendment to the Companies Act, the government had decriminalised 16 sections. Most of them covered lapses such as prohibition on issue of shares at discount or failure to file a copy of financial statement with the registrar. Both the offences had a provision for a six-month prison sentence along with a fine.
Government has now restricted the punishment to a fine or penalty and done away with imprisonment.
Besides decriminalisation 17 other amendments have also been made in the Companies Bill such as allowing a class of public companies to list certain securities on stock exchanges in permissible foreign jurisdictions. It also allows companies, which have spent an amount in excess of the requirement of 2 per cent on corporate social responsibility, to set off such excess amount out of their obligation in the succeeding financial years.
-35 penal provisions totally decriminalized
- 11 penal provisions imprisonment removed but retaining fine.
- 6 provisions to have reduced penalties
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