The finance minister of India, Smt. Nirmala Sitharaman tabled the Companies (Amendment) Bill, 2020 (the "Bill") before the Lok Sabha on March 17, 2020, to introduce certain modifications to the Companies Act, 2013 (the "Act") with a view to promote ease of doing business and ease of living to corporates in India1 . The proposed amendments under the Bill are based on the recommendations submitted by the Company Law Committee (the "Committee"), which was formed with representatives from the industry chambers, professional institutes and legal fraternity. The mandate of the Committee was relatively wide-ranging including envisaging various reforms to the Act such as reviewing offences, introducing mechanisms to reduce burden on courts, ensuring effective disposal of cases, improving functioning of various authorities under the Act and suggesting other changes with the objective of promoting ease of doing business in India2 . The Committee submitted its report to the union minister, Ministry of Corporate Affairs (MCA) on November 14, 2019. The recommendations of the Committee were largely based on re-categorization of certain criminal compoundable offences into civil wrongs carrying civil liabilities3 , rationalization of penalties, mechanisms for reducing the overall pendency of disputes and certain other ancillary changes to address emerging issues impacting the working of corporates in the country4 .


Some of the important amendments that have been proposed to be introduced by the Bill are discussed below.

2.1 Overhaul of penalties

The Bill aims to overhaul the penalty regime for various non-compliances, as currently contemplated under the Act in a 3 (three) fold manner:

(a) Removal of imprisonment and/or substitution with monetary penalty

The Committee recommended omission of certain offences under the Act as it was felt that such offences can be sufficiently dealt with under other prevailing laws such as the Insolvency and Bankruptcy Code, 2016 (the "Code"). It was also highlighted by the Committee that in the event any vacuum is created because of the deletion of an offence from the relevant Section of the Act, Section 450 of the Act (which deals with punishments where no other penalty is prescribed), can always be resorted to5 . Accordingly, certain offences contemplated under the Act, such as defaults in relation to: (i) compliance with the provisions of the Act dealing with variation of shareholders rights6 ; (ii) publication of the order of the National Company Law Tribunal ("Tribunal") for reduction in shares7 ; and (iii) compliance with the orders of the Tribunal in respect of debentures8 , amongst others, have been proposed to be omitted from the Act. Additionally, with respect to certain other non-grave offences punishable with imprisonment and/or with monetary penalty, the Bill has proposed substitution of such offences with monetary penalty only. In this respect, offences such as default in compliance by a company: (i) while purchasing its own securities9 ; (ii) for registration of charges10; (iii) in maintaining registers, filing returns or taking other necessary steps regarding declaration of significant beneficial ownership11; and (iv) in maintaining books of account to be kept by the company12 , which currently contemplate imprisonment and/or monetary penalty for defaults, are proposed to be substituted solely with monetary penalties, as applicable. The rationale for introducing such modifications is to decriminalise minor procedural or technical lapses under the Act into civil wrongs and reduce the overall pendency of the courts by removing the criminality in case of defaults, the commission of which is not linked with any malafide intention on the account of the wrong-doer and/or does not involve larger public interest13 .

(b) Reduction in amount of penalty

The Bill also aims to reduce the penalties for certain offences such as non-maintenance of register of members14, failure to file annual return within the prescribed timelines15, failure to file resolutions and agreements in terms of the Act17 and non-compliance of provisions relating to unpaid dividend account17 and such modifications to the Act have been proposed as a part of providing a further ease of living to corporates living in the country18

(c) Dealing with certain offences in an alternate framework

The Committee was of the view that for certain offences under the Act, the proposition of replacing such offence with monetary penalty and/or mere rationalization of penalties may not achieve the intended result. Therefore, the Committee perceived that it may be worthwhile to device an alternate mechanism to address the concerns created by such offences in order to better achieve the desired objective of such provisions. Based on such suggestions of the Committee, an alternate framework for certain offences has been proposed to be introduced. For instance, one such proposed amendment relates to a situation where, if a company fails to abide by the order of the Regional Director under Section 16(1)19 of the Act, (requiring rectification of the name of the company on the grounds that such name is identical or similar to an existing company, or a registered trademark), within 3 (three) months of passing of such order, then in place of imposing civil liability on the company, an auto-generated name shall be assigned to such company, which name the company shall be bound to use until it gets it changed through due process as per the provisions of the Act. The other provisions of the Act where such alternate mechanisms have been proposed, include provisions relating to non-compliance with order of compounding of the Tribunal or the Regional Director20, non-cooperation of promoters, directors and employees with the company liquidator21 and company liquidator not serving the order of dissolution to Registrar of Companies ("RoC")22 .


1 Page 3, Para 1, Committee Law Report, 2019.

2 Page 11, Para 1.4, Committee Law Report, 2019.

3 Page 3, Para 1, Committee Law Report, 2019.

4 Page 11, Para 1.3, Committee Law Report, 2019

5 Page 26, Para 3.1, Committee Law Report, 2019.

6 Penalty under Section 48 (5) of the Act.

7 Penalty under Section 66 (11) of the Act.

8 Penalty under Section 71 (11) of the Act.

9 Penalty under Section 68 (11) of the Act.

10 Penalty under Section 86 (1) of the Act.

11 Penalty under Section 90 (11) of the Act.

12 Penalty under Section 128 (6) of the Act.

13 Page 36, Para 3, Statement of Objects and Reasons of the Bill.

14 Penalty under Section 88 (5) of the Act.

15 Penalty under Section 92 (5) and (6) of the Act.

16 Penalty under Section 117 (2) of the Act.

17 Penalty under Section 124 (7) of the Act.

18 Page 36, Para 3, Statement of Objects and Reasons of the Bill.

19 Rectification of name of Company.

20 Penalty under Section 441 (5) of the Act.

21 Penalty under Section 284 (2) of the Act.

22 Penalty under Section 302 (4) of the Act.

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Originally published 14 August, 2020

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