{"id":7493,"date":"2020-04-11T19:10:07","date_gmt":"2020-04-11T13:40:07","guid":{"rendered":"https:\/\/triumphias.com\/blog\/?p=7493"},"modified":"2020-04-11T19:10:07","modified_gmt":"2020-04-11T13:40:07","slug":"covid-19-companies-amendment-bill-2020","status":"publish","type":"post","link":"https:\/\/triumphias.com\/blog\/covid-19-companies-amendment-bill-2020\/","title":{"rendered":"COVID-19 &#038; Companies Amendment Bill 2020"},"content":{"rendered":"<p><span style=\"color: #0000ff;\"><strong>Relevance: Prelims\/Mains: G.S paper III: Economy<\/strong><\/span><\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.consultease.com\/wp-content\/uploads\/2020\/03\/0-Google-Chrome-2020-03-19-11.02.31.png\" alt=\"KEY TAKE AWAY -THE COMPANIES (AMENDMENT) BILL, 2020\" \/><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Context:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>To facilitate ease of doing business in India, the Ministry of Corporate Affairs has sought to decriminalise the Companies Act, 2013 by introducing the Companies (Amendment) Act, 2019, and the Companies (Amendment) Bill, 2020.<br \/>\n\u2022 While the Novel COVID-19 will inevitably have a wide-ranging impact on companies in India, hopefully these timely amendments will foster faith, improve corporate compliance, and facilitate investments.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Background:<\/strong><\/em><\/span><\/p>\n<ul>\n<li><strong>The Companies (Amendment) Bill, 2020 was approved by the Cabinet and introduced in the Lok Sabha.<\/strong><br \/>\n\u2022 Over the past year, this Bill has been the second attempt of the Ministry of Corporate Affairs to decriminalise offences under the Companies Act, 2013, the first being the passing of the Companies (Amendment) Act, 2019.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Companies (Amendment) Act, 2019:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>Following the recommendation of \u2018Report of the Committee to Review Offences under the Companies Act, 2013\u2019, the 2019 Amendment decriminalised 16 sections of the Act to civil violations.<br \/>\n\u2022 The 2019 Amendment eliminates the criminality of these violations by levying monetary penalties instead of criminal fines.<br \/>\n\u2022 Levying these penalties has also been shifted from courts to in-house adjudication mechanisms (IAM) under Section 454 of the Act, whereby adjudicating officers appointed by the Central Government determine the offences and enable companies to promptly communicate, represent, and resolve defaults.<br \/>\n\u2022 Though these amendments were initially brought in by the Companies (Amendment) Ordinance, 2018, the Companies (Amendment) Ordinance, 2019, and the Companies (Amendment) Second Ordinance, 2019, it finally received Parliament assent by the 2019 Amendment.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Decriminalise the Act:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>The Company Law Committee (CLC) was constituted to further decriminalise the Act, as a concomitant measure to support the ministry\u2019s objectives.<br \/>\n\u2022 The recommendations of the report of the CLC, as is now in the Bill, moots the fact that decriminalisation of minor non-compliance instils confidence in both domestic and global players and boosts foreign investments.<br \/>\n\u2022 The CLC observes that despite the rigours of criminal law, the efficiency of criminal law with regard to corporate misconduct is open to question. Criminal prosecutions are time-consuming and complex.<br \/>\n\u2022 Accordingly, some scholars argue for corporate criminal offences to be completely replaced by civil prosecution.<br \/>\n\u2022 Another school of thought recommends that penalties not commensurate with the offence\/default may be counter-productive and, instead, could incentivise non-compliance.<br \/>\n\u2022 Accordingly, the report recommends decriminalising technical and minor non-compliance, while retaining strict criminal enforcement for serious, fraudulent offences that jeopardise and prejudice public interest.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>The Companies (Amendment) Bill, 2020:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>Based on the recommendations of the report, the Bill proposes to, decriminalise the Act under the following framework:<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Re-categorization of 23 compoundable offences to the IAM:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>Offences such as non-maintenance of company records at the registered office, non-issuance of statutory notices, non-compliance of disclosure obligations, etc. do not involve objective determination, exercise discretion, are easily determined by the MCA21 system and, hence, may be treated as civil wrongs, determined by the IAM framework.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Omission of the 7 compoundable offences:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>The offences proposed to be omitted are those that may be dealt with through other laws.<br \/>\n\u2022 The offences related to non-compliance with orders of the National Company Law Tribunal (NCLT) may be dealt with by NCLT contempt jurisdiction, instead of being treated as separate offences.<br \/>\n\u2022 Similarly, non-compliance by company liquidators can be dealt with through the relevant provision of the Insolvency and Bankruptcy Code, 2016.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Limiting 11 compoundable offences to fine only:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>It is proposed that only a criminal fine be imposed for offences that are substantial enough to warrant criminal liability, but do not warrant punishment by incarceration upon conviction, particularly if the compoundable offences do not involve substantial public interest.<br \/>\n\u2022 Accordingly, punishment for non-maintenance of account books at the registered office, non-compliance\/contravention of public-offer and buy-back requirements, etc. may be accordingly restricted.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Alternate framework for 5 offences:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>It is proposed that alternate frameworks could better achieve the intended aim of certain penal provisions in the Act, such as non-cooperation by promoters, directors, etc. with the company liquidator, for which corresponding provisions of the Insolvency and Bankruptcy Code (IBC) may be inserted.<br \/>\n\u2022 Similarly, the maximum permissible fine for the initial offence for which a compounding application has been made may be doubled for non-compliance of an NCLT, or Regional Director\u2019s order of compounding by an employee or officer of the company.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Significance:<\/strong><\/em><\/span><\/p>\n<p><strong>Lesser penalties for certain offences:<\/strong><\/p>\n<ul>\n<li>Section 446B is amended to provide that non-compliance by One Person Companies, Small Companies, Start-up Companies or Producer Companies, or by any of its persons or officer in default, are only liable to one-half the penalty specified in the respective provisions, subject to a maximum of Rs. 2 lakh in case of a company and Rs. 1 lakh in case of person or default officer.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Benefit to Independent Directors (ID):<\/strong><\/em><\/span><\/p>\n<ul>\n<li>IDs have been recently in the spotlight for corporate lapses and violations.<br \/>\n\u2022 The amendments are vital for IDs to dissociate them from personal liabilities of the operational lapses and violations, especially when the offence has been committed without any evidence attributing knowledge, consent, connivance, or lack of diligence of the IDs.<br \/>\n\u2022 It directs that civil or criminal proceedings not be unnecessarily initiated against the IDs, unless there is sufficient evidence, and if already initiated, must be reviewed.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Way forward:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>The aforementioned recommendations endeavour to simplify and accelerate the processes of rectifying defaults by paying penalties, instead of fighting a criminal trial.<br \/>\n\u2022 It also benefits the State by reducing the burden on courts, allowing them to focus on serious offences.<br \/>\n\u2022 These amendments are admirable steps towards the three-pronged goal of:<br \/>\n\u2022 To reducing the burden on company courts,<br \/>\n\u2022 To ensuring investor interests, and<br \/>\n\u2022 To facilitating the ease of doing business while collaterally safeguarding and incentivizing senior management to remain invested.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline; color: #ff0000;\"><em><strong>Conclusion:<\/strong><\/em><\/span><\/p>\n<ul>\n<li>This could well be the step towards showing intent to incentivize domestic and global investments, especially post COVID-19.<\/li>\n<\/ul>\n<p><span style=\"color: #0000ff;\"><strong>For more such notes, Articles, News &amp; Views Join our Telegram Channel.<\/strong><\/span><\/p>\n<p><a title=\"Telegram Link\" href=\"https:\/\/t.me\/triumphias\" target=\"_blank\"><span style=\"color: #ff0000;\"><strong>https:\/\/t.me\/triumphias<\/strong><\/span><\/a><\/p>\n<p><span style=\"color: #0000ff;\"><strong>Click the link below to see the details about the UPSC \u2013Civils courses offered by Triumph IAS.<\/strong> <\/span><span style=\"color: #ff0000;\"><strong><a style=\"color: #ff0000;\" title=\"Courses available\" href=\"https:\/\/triumphias.com\/pages-all-courses.php\">https:\/\/triumphias.com\/pages-all-courses.php<\/a><\/strong><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Relevance: Prelims\/Mains: G.S paper III: Economy &nbsp; Context: To facilitate ease of doing business in India, the Ministry of Corporate<\/p>\n","protected":false},"author":1,"featured_media":6714,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[123,42,43],"tags":[392],"class_list":["post-7493","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","category-general-studies-iii-technology-economic-development-bio-diversity-environment-security-and-disaster-management","category-indian-economy","tag-union-public-service-commission-upsc"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/7493","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/comments?post=7493"}],"version-history":[{"count":1,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/7493\/revisions"}],"predecessor-version":[{"id":7494,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/7493\/revisions\/7494"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media\/6714"}],"wp:attachment":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media?parent=7493"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/categories?post=7493"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/tags?post=7493"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}