companies-act-being-changed-to-promote-ease-of-doing-business

Context: The government proposed to decriminalise provisions of the Companies Act to enhance ease of doing business in the country as part of the government Covid-19 relief package. 

Background:

  • The move has been part of larger government efforts to boost ease of doing business since 2018. 
    • The recently decriminalised offences include administrative offences such as delays in filing CSR reports, or failure to rectify the register of members in compliance with orders from the The National Company Law Tribunal (NCLT). 
    • The decriminalisation efforts are really an effort to pull back on regulations introduced in 2014 aimed at boosting corporate compliance. 
    • The government had also introduced amendments to the Companies Act making violations of the Corporate Social Responsibility (CSR) provisions punishable by imprisonment but it didn’t operationalise.
    • With the overhaul of the Companies Act in 2014, a lot more regulations were introduced for better compliance and therefore a number of penal provisions with both civil and criminal penalties were introduced.
    • However, the government started to relax criminal provisions as compliance levels improved.
    • The Companies Act amendment bill 2020 has also proposed to remove criminal liability from CSR provisions.

More on the news:

  • There has been a larger effort on part of the government to remove criminal penalties from all provisions of the Companies Act, except provisions dealing with fraudulent conduct.
    • The imprisonment penalty removed from a  number of offences previously classified as compoundable offences.
  •  Some of these offences have been omitted altogether while others have been shifted from the purview of the NCLT to an in-house adjudication mechanism.

Other Changes that are Proposed

  • The number of compoundable offences under the Companies Act have come down to 31 from 81 prior to the 2018 amendment to the Companies Act. 
    • A number of these offences have been moved from needing to be prosecuted through the National Company Law Tribunals to being dealt with by the Registrar of Companies (RoC). 
    • The RoC is empowered to decide penalties for these offences and companies can appeal to the Regional Director (RD) of the Ministry of Corporate Affairs (MCA) to appeal or seek modifications to these decisions. 

Impact of decriminalising Offences 

  • This move would help free up the bandwidth of NCLTs to deal with cases dealing with insolvency and other higher priority matters
    • The total number offences to be dealt with the in-house adjudication mechanism has risen from 18 in 2018 to 58 proposed in the latest amendment.

Way Forward

  • The ministry is expected to come out with further measures to decriminalise provisions in the companies act particularly those relating to auditors
    • The Company Law Committee had also in its report said that it would take up the matter of easing provisions of debarment of audit firms in the next phase of decriminalisation of the Companies Act. 

 

Compoundable Offences

 

Compoundable Offences 

Non Compoundable Offences

Charges against the accused can be withdrawn.

The charges against the accused cannot be withdrawn

The nature of the crime is not so serious.

The nature of the crime is serious.

Offence compoundable by with permission or without permission of the court.

The offence cannot be compounded. It's only quashed.

Impacts an only private person. While in the non-compoundable offence

Affects both, private people as well as the society at large.

The case is generally filed by a private person.

The case is generally filed by the state.

Source: https://indianexpress.com/article/explained/why-is-the-companies-act-being-changed-6419000/

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