Government Will Reduce Provisions To Prosecute Under Companies Act

The government is planning to reduce the provisions to prosecute for violation of the Companies Act while looking to introduce a settlement mechanism and “deferred prosecution agreements” under the law to ease the burden on the corporate sector.

Background – Provisions To Prosecute Under Companies Act

• The ministry had constituted a 10-member committee headed by Corporate Affairs Secretary Injeti Srinivas on July 2018 to review whether some offences could be decriminalised and handled through an in-house mechanism, which involves levying penalties in cases of default.
• The idea was to allow the clogged up trial courts to pay more attention to offences of a serious nature.
• The panel in its report recommended re-categorising 16 offences – out of 81 in the category of compoundable offences, i.e. those punishable by fine and/or imprisonment – as defaults carrying civil liabilities under the above mechanism.
• These changes have been introduced through the Companies (Amendment) Act, 2019, which received President Ram Nath Kovind’s nod on July 31.

Recommendations made by the committee

1. Restructuring of Corporate Offences to relieve Special Courts from adjudicating routine offences.

Compoundable offences-

• Re-categorization of 16 out of the 81 compoundable offences by shifting them from the jurisdiction of special courts to an in-house E-adjudication framework.
• The remaining 65 compoundable offences to continue under the jurisdiction of Special Courts due to their potential misuse.

Non-compoundable offences-

• Status quo recommended in respect of all serious corporate offences.
• Instituting a transparent online platform for E-adjudication and E-publication of orders.

2. De-clogging the National Company Law Tribunal

• Enlarging the jurisdiction of the Regional Director with enhanced pecuniary limits.
• Vesting in the Central Government the power to approve the alteration in the financial year of a company and also the conversion of public companies into private companies.

3. Corporate compliance and corporate governance-

• Re-introduction of the declaration of commencement of business provision to better tackle the menace of shell companies.
• Greater disclosures with respect to public deposits, particularly in respect of transactions exempted from the definition of public deposits to prevent abuse and harming of public interest.
• Reduction in time-limit for filing documents related to creation, modification and satisfaction of charges.
• Stringent penal provisions for non-reporting.
• With respect to shares whose ownership remains undetermined, such shares should be transferred to the Investor Education and Protection Fund if rightful owner does not claim ownership within a year of such restrictions.
• Non-maintenance of the registered office to trigger the de-registration process.
• Holding of directorships beyond permissible limits to trigger disqualification of such directors.
• The imposition of a cap on independent director’s remuneration in terms of percentage of income in order to prevent any material pecuniary relationship, which could impair his independence on the board of the company.

Also read: The Non-Banking Financial Company

The Whistle Blower Bill, 2015

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