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
Recommendations made by the committee 1. Restructuring of Corporate Offences to relieve Special Courts from adjudicating routine offences. Compoundable offences-
- 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.
- 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.
2. De-clogging the National Company Law Tribunal
- Status quo recommended in respect of all serious corporate offences.
- Instituting a transparent online platform for E-adjudication and E-publication of orders.
3. Corporate compliance and corporate governance-
- 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.
Also read: The Non-Banking Financial Company The Whistle Blower Bill, 2015 Source 1 Source 2
- 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.