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The Companies Amendment Bill, 2020: Noting the Changes


The Company Law Committee under the Chairmanship of Mr. Injeti Srinivas was constituted with the mandate to recommend re-categorization of certain “acts” punishable as compoundable offences to “acts” carrying civil liabilities and improving the in-house adjudication mechanism. The recommendation of this Committee became the basis of the Companies Amendment Bill 2020 (“CAB 2020”) as introduced by the Ministry of Finance and passed by the Lok Sabha on September 19, 2020.

Major Changes

1. De-criminalization: The CAB 2020 proposes 72 amendments to the Companies Act, 2013 (“Act”) to decriminalise those defaults which could be determined objectively, lack any element of fraud or do not involve larger public interest and all minor procedural or technical lapses been converted into civil wrongs. The CAB 2020 has re-categorized at least 23 out of 66 compoundable offences under the Act to be now dealt with an in-house adjudication framework. These measures are aimed at providing relaxation to corporates, reducing consequences of certain harmless non-compliances for companies and creating a greater ease of doing ethical business. It will also boost confidence of the investors as the fear of imprisonment will be reduced.

2. Enabling provisions for Central Government: The Central Government has been delegated substantial powers:

(i) To exclude, after consultation with the SEBI, certain class of companies from the definition of “listed company”, mainly for listing of debt securities. Though the Act read with the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 indicates that even certain private companies are permitted to list debt securities on a recognised stock exchange but stringent compliances was not encouraging private companies to opt this route. This has now been addressed as ‘the provisions applicable to other listed companies’ under the Act would cease to be applicable for such listed private companies.

(ii) To reduce the number of days from existing 15 days available to the shareholder to accept the offer under the rights issue as per Section 62 of the Act that provides that 15-30 days is required to be given for acceptance of such an offer.

(iii) To allot auto-generate a neutral name and issue a fresh certificate of incorporation binding a company to use such new name if it fails to follow RD order. If the name of a company coincided with a registered trademark, upon application by such registered trademark, the RD was empowered to issue an order directing the Company to change the name within 6 months, which has now been reduced to 3 months.

(iv) To exempt foreign listed companies (prescribed class of public companies to list permitted securities on stock exchange in permissible foreign jurisdictions) from provisions of Chapter III (Prospectus/Allotment of Securities/Private placement), Chapter IV (Share Capital and Debentures), Section 89 (Declaration in respect of beneficial interest in share), Section 90 (Significant beneficial ownership), Section 127 (Punishment for failure to distribute dividends) and Chapter XXII. Rules will also be prescribed for this.

(v) To exempt application of the provision related to significant beneficial ownership under Sections 90(1) and 89 of the Act.

(vi) To allow certain classes of Indian public companies to directly list classes of securities (as may be prescribed) in foreign jurisdictions, which is likely to help start-ups to tap overseas markets for raising capital.

(vii) To prescribe rules for selected class of unlisted companies (except for large unlisted companies who have availed loans above a threshold (to be specified) from banks and financial institutions) to prepare (interim) financial results based on prescribed periodicity and format, obtain approval of Board and complete audit/limited review in prescribed manner and file a copy of the same with ROC within a period of 30 days from the end of relevant period, as may be prescribed, thereby relaxing the SEBI LODR regulations.

(viii) To provide exemption from filing certain resolutions by NBFCs as mandated under Section 117(3)(g) read with Section 179(3)(f) of the Act. Now, apart from banking companies, the NBFCs and Housing Finance Company have been allowed exemption from the requirement of filing resolution with respect to grant of loans or provide guarantee/security in respect of loan.

3. NCLAT Benches: The cap of 11 members on the number of members in NCLAT has been removed. NCLAT, in addition to the matters under the Act is also empowered to hear matters under Competition Act, 2002 and IBC 2016. The cap on members was creating a bottleneck and now NCLAT can have benches.

4. Remuneration to non-executive directors: In case of inadequate profits made by a company, Section 197 of the Act read along with the Schedule V provides for computation mechanism of remuneration payable to managerial personnel, which has now been extended to non-executive directors, including independent directors.

5. Producer Company: Reintroduced the concept of a body corporate comprising of farmers and agriculturists who work in cooperation with each other to promote better standards of living and gain easier access to credit, technology, market etc. from 1956 Act.

6. CSR provisions: The companies which have CSR spending obligation up to Rs. 50 lacs shall not be required to constitute CSR Committee and to allow eligible companies under Section 135 of the Act to set off any amount spent in excess of their CSR spending obligation in a particular financial year towards such obligation in subsequent financial years.

Authored by
Neeraj Dubey, Partner – Corporate Law