9 Major Changes in Companies (Amendment) Bill, 2020

Lok Sabha on Saturday passed a bill to further amend around 48 sections of the Companies (Amendment) Bill, 2020 by decriminalizing various non-compoundable offences in case of defaults, but not involving frauds, omitting imprisonment for various offences which were considered procedural and technical in nature.

“There are 48 sections we have amended to decriminalise them and 17 sections have been amended to improve the ease of doing business” says the Minister for Corporate Affairs, Ms. Nirmala Sitharaman

Speaking on the bill, Sitharaman further said decriminalisation of various penal provisions under the companies law will also help small companies by reducing the litigation burden on them. Sitharaman said there are currently around 124 penal provisions compared to 134 in 2013

1) NCLT

The bill removes the penalty, imprisonment for 9 offenses which relate to non-compliance with orders of the national company law tribunal (NCLT), and reduces the amount of fine payable in certain cases. 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.

2) Corporate Social Responsibility

Provisions under the bill allowed companies to roll over excess corporate social responsibility (CSR) spends to succeeding years and exempted companies with a CSR obligation below Rs 50 lakh from the need to set up a CSR committee.

3) Direct Listing of Securities in Foreign Jurisdictions

The bill also included enabling provisions for the direct listing of securities of Indian public companies in permissible foreign jurisdictions and empowered the government, in consultation with the Securities and Exchange Board of India, to exempt private companies issuing specified classes of securities on exchanges from the definition of a listed company.

4) Reduce Penalty for Offence, removes imprisonment

it removes the penalty for certain offences like, For example, it removes the imprisonment of three years applicable to a company for buying back its shares without complying with the Act.

5) Remuneration to Independent directors

The Company Act makes special provisions for payment of remuneration to executive directors of a company, if the company has inadequate or no profits in a year. The Bill extends this provision to non-executive directors, including independent directors.

6) Exemptions from filing resolutions to NBFCs

The Act requires companies to file certain resolutions with the ROC, excluding banking companies are exempt from filing resolutions passed to grant loans, or to provide guarantees or security for a loan. This exemption has been extended to non-banking financial companies and housing finance companies.

7) Producer Companies

Under the 2013 Act, certain provisions from the Companies Act, 1956 continue to apply to producer companies. These include provisions on their membership, the conduct of meetings, and maintenance of accounts. The Bill removes these provisions and adds a new chapter in the Act with similar provisions on producer companies.

8) Financial Results Filing & Corporate Governance

Specified class of unlisted companies will now have to prepare and file their financial results periodically and also complete the audit or review of such results.

Also, the Bill provides for a window within which the penalties shall not be levied for delay in filing of annual returns.
This aims to improve corporate governance as it will bring more transparency into affairs of closely held companies which are used by major shareholders of large public interest companies to divert funds through transactions that are not on an arm’s length basis.