Decriminalise 46 more offences under companies law; lower monetary penalties for startups violations, says panel report

The Company Law Committee, chaired by Corporate Affairs Secretary Injeti Srinivas, has also recommended providing power to enhance thresholds for the applicability of CSR requirements under the Companies Act, 2013

Press Trust of India November 19, 2019 11:37:12 IST
Decriminalise 46 more offences under companies law; lower monetary penalties for startups violations, says panel report
  • The Company Law Committee, chaired by Corporate Affairs Secretary Injeti Srinivas, has also recommended providing power to enhance thresholds for the applicability of CSR requirements under the Companies Act, 2013

  • As per the panel's report submitted to Corporate Affairs Minister Nirmala Sitharaman, 23 out of the 66 remaining compoundable offences under the Companies Act could be recategorised

  • There are also suggestions for reducing timelines to speed up rights issues and giving certain exemptions to non-banking financial companies in consultation with the Reserve Bank

New Delhi: A government-appointed high level panel on Monday proposed decriminalising more than half of the existing compoundable offences under the companies law as well as lower monetary penalties for violations by startups, amid efforts to further improve the ease of doing business in the country.

The Company Law Committee, chaired by Corporate Affairs Secretary Injeti Srinivas, has also recommended providing power to enhance thresholds for the applicability of CSR requirements under the Companies Act, 2013.

Amendments to 46 penal provisions, "so as to either remove criminality, or to restrict the punishment to only fine, or to allow rectification of defaults through alternative methods", have been suggested by the committee.

The proposals are aimed at further de-clogging of the criminal justice system as well as improve the ease of doing business in the country, an official said.

As per the panel's report submitted to Corporate Affairs Minister Nirmala Sitharaman, 23 out of the 66 remaining compoundable offences under the Companies Act could be recategorised.

Decriminalise 46 more offences under companies law lower monetary penalties for startups violations says panel report

Representational image. Reuters

Such offences could then be dealt with in-house adjudication framework wherein these defaults would be subject to a penalty levied by an adjudicating officer.

"Omitting, altogether, 7 compoundable offences; limiting punishment for 11 compoundable offences to only fine by removing provision for imprisonment and recommending that 5 offences be dealt under alternative frameworks," the release said.

There could be a reduction in the quantum of penalties in respect of six provisions, which were shifted to the in-house adjudication framework through the recent amendments to the Act.

However, the panel has pitched for the status quo in case of non-compoundable offences.

Generally, compoundable offences are those which can be settled by paying a certain amount of money.

Earlier this year, the corporate affairs ministry de-criminalised 16 minor procedural/ technical lapses under the Act into ‘civil wrongs'.

Another proposal is for "extending applicability of Section 446B (lower penalties for small companies and one-person companies) to all provisions which attract monetary penalties and extending the benefit to producer companies and startups," the release said.

After considering the panel's proposals, the ministry is likely to bring in amendments to the Companies Act in the current session of Parliament, the official said.

Power to exclude a certain class of companies from the definition of ‘listed company', mainly for the listing of debt securities, in consultation with Sebi, and provisions for allowing payment of adequate remuneration to non-executive directors in case of inadequacy of profits, are among other proposals.

There are also suggestions for reducing timelines to speed up rights issues and giving certain exemptions to non-banking financial companies in consultation with the Reserve Bank.

Besides, the committee has called for taking up various other issues, including a mechanism for appeal against orders of Regional Directors before the National Company Law Tribunal (NCLT).

Other matters put up for consideration later include reviewing provisions on disqualification of directors and debarment of audit firms. Another such issue is about exempting certain private placement requirements for Qualified Institutional Placements (QIPs) after due consultation with Sebi, the release said.

Former Lok Sabha Secretary General T K Viswanathan, Kotak Mahindra Bank MD Uday Kotak and Shardul Amarchand Mangaldas & Co-Executive Chairman Shardul S Shroff are among the members of the panel.

Sandeep Jhunjhunwala, Director at Nangia Andersen LLP , said measures to decriminalise few offences would go a long way in supporting the government's intention to ease way of doing business.

"However, burning issues such as disqualification of Directors and debarment of audit firms which have been reserved for future deliberations could have considered now, keeping in mind their relevance and gravity," he added.

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