India: Highlights Of The Companies (Amendment) Bill, 2020

(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 .