News & Blog

Government Introduces Companies Amendment Bill 2020

News & Blog

Companies Amendment Bill 2020

2020 has been the year of multiple amendments for the corporate sector. With various amendments brought under the provisions of Corporate Social Responsibility, Incorporation of companies, CARO 2020, etc., the Central Government (CG) has again laid down another set of amendments before the Lok Sabha on 17th March 2020 by way of Companies (Amendment) Bill 2020, also known as CAB, 2020. The CAB, 2020 has been based on the Company Law Committee which was set up under the Chairmanship of Shri Injeti Srinivas in September 2019. The CLC was constituted with a view to decriminalize offenses and provide ease of doing business to the corporates and other stakeholders. The Committee presented its Report in November 2019 which provided for de-clogging 46 penal provisions in the following manner:

  • Re-categorising of   23 offenses out of   66   compoundable offenses to an in-house adjudication framework wherein penalty will be levied by an adjudication officer.
  • Omitting 7 Compoundable Offences
  • Limiting 11 Compoundable Offences to fine only (removing imprisonment part)
  • Recommending 5 offenses to be dealt with an alternative framework.

Major Objective of Companies (Amendment) Bill, 2020

As per the Companies Law Committee Report, the main objective of the Companies (Amendment) Bill, 2020 provides for the following:

Companies Amendment Bill 2020

  • Decriminalizing such offenses and defaults under Companies Act, 2013 that can be determined objectively and which lack any element of fraud or does not involve larger public interest.
  • Empowering Central Government in consultation with SEBI to exclude a certain class of companies from the definition of “Listed Company”, for the listing of debt securities.
  • Making provisions to allow payment of sufficient remuneration to Non-Executive Directors in case of insufficiency of profits, the same as the provisions of remuneration to executive directors in such cases.
  • Exempting any class of persons to comply with the requirements of Section 89 which relates to the declaration of the beneficial interest in shares.
  • Reducing timelines for applying for right issues to speed up such issues under Section 62
  • Exemptions to certain Non-Banking Financial Companies and Housing Finance Companies from filing certain resolutions under Section 117
  • Amending provisions relating to CSR.

Also Read: How to register a Private Limited Company?

Now since the objective of this bill is clear, let’s begin our journey with a quick snapshot of Companies Amendment Bill 2020

Key Highlights of the Companies Amendment Bill, 2020

Following are the key highlights of the Companies Amendment Bill, 2020

  1. Amendment in Section 2(52) that defines “Listed Company”

A proposal has been placed to exclude such listed companies or such companies which have the intention to list such a class of securities from the category of listed companies.

  1. Section 16-Rectification of name

If a company was registered unintentionally with a registered trademark of a proprietor, and the name is too identical or resembles an existing trademark, such a company has to change its name within 3 months from the issue of CG’s direction instead of 6 months’ timeline provided earlier.

 Further, with a view to decriminalizing the offense, if committed by a company, in case of default in this section, the CG shall allot a new name per the directions of the ROC to the company and the ROC shall issue a fresh Certificate of Incorporation. Although the company shall not be prevented from changing its name afterward.

  1. Section 62 – Reduction in Timeline of Rights Issue

As per the current provisions, the time period for providing an offer letter to the existing shareholders under the rights issue procedure is 15 days to 30 days, beyond which the offer is deemed to be declined.

Now it has been proposed to lessen the timeline of such an offer. This will ultimately fasten the completion of the process of Rights Issue which is highly used for raising the fund by the corporates.

  1. Section 117 – Resolutions and agreements to be filed

This section states the filing of resolutions with the Registrar of Companies (ROC). This section however currently exempts banking companies that provide any loan, security or guarantee in connection with the loan in its ordinary kind of business from filing the resolutions in e-form MGT -14.

Now it has been decided that such exemption will be applicable to registered NBFC’s and HFC’s also.

  1. Section 129A (Newly inserted) – Periodical Financial Results

The Central Government may require such class or classes of unlisted companies

  • To prepare the financial results of the company
  • To obtain the approval of the Board of Directors
  • Complete audit or Limited review of such periodical financial statements
  • File a copy with the Registrar within a period of thirty days of completion of the relevant period
  1. Section 135 – Corporate Social Responsibility

Under this section, the following changes are proposed:

  • If the company spends an amount in excess of the requirements under this section, then such a company may set off such excess amount against the requirement to spend for such a number of succeeding financial years and in such manner, as may be prescribed.
  • Penalty for default in the transfer of the unspent amount to the respective funds:
  1. On the company – Twice the amount required to be transferred or 1 Crore whichever is lower, and
  2. On every officer in default – 1/10th of the amount required to be transferred in the respective funds or, Rs. 2 lakhs, whichever is lower
  • No requirement of a CSR Committee where the amount required to be spent is less than Rs. 50 lakhs and the Board of Directors shall discharge the functions of that of a CSR Committee.
  1. Section 149 – Company to have Independent Directors

Earlier the provisions provide that Independent Directors are not subject to stock options and are entitled only for the sitting fees, profit related commission and reimbursement of expenses which is incurred in attending the meetings.

However, the amendment states that the Independent Director will be able to receive any other remuneration apart from the above even if there is no profit or inadequate profits in the company.

  1. Other Major Changes

Apart from the above, a lot of penal consequences have been scaled down or amended under different sections.

For example, now in Section 92 (5) of the Companies Act, 2013, if any company fails to file its annual return under sub-section (4) before the expiry of the period specified, such company and it’s every officer who is in default shall be liable to a penalty of TEN thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of TWO lakh rupees.’

The Government has also introduced provisions which allow a certain class of companies to list their shares on Foreign Exchanges while giving them exemption under the provisions of Section 89, 90 and 127.

For complete information, read the complete notification by clicking here

The allegation by the Opposition parties on Companies Amendment Bill, 2020

The Opposition alleged that the government was trying to appease corporates by proposing to reduce the penalty for defaulters and introduced a Bill to amend the Companies Act 2013 and decriminalize various offenses under it.

Our Take

The Bill seems to decriminalize minor procedural and technical defaults that do not involve fraud or injury to the public interest. It is going to reduce the burden on the NCLT (National Company Law Tribunal) for compounding of offenses and the criminal court where the prosecutions are today filed for those minor defaults.

Also Read: No Criminality in Business Default as per Companies (Second Amendment) Bill, 2019

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