Decriminalization of Certain Compoundable offences under Companies Act, 2013: A Welcome Step

Introduction

Before the introduction of LPG policy (Liberalization, Globalization, and Privatization) the corporate sector of India was being punished through a series of rigorous regime of penalties, fines and punishments for the non-compliance and non-adherence of laws as set up by the Company Act of 1953. The Company Law regime of India has been evolved in a stricter sense over the course of time since its inception. With gradual increase in time, The Corporate Sector saw difficulties and complication in doing business with respect to the rules and regulations set up by the authoritative body.

The advent of COVID-19 has brought many discriminatory changes in the due process of doing business. It has drastically changed the life of the working population and the companies too are facing difficulties due to changed working patterns and also in fulfilling their technical, regulatory and procedural difficulties with respect to The Companies Act (2013). With the advent of COVID-19, the government of India has proposed many relaxations and reliefs. To adapt more to the changing situation, the Government of India has taken the initiative in decriminalizing offences under the new Companies Amendment Bill of 2020 which has been passed by the Lok Sabha in the month of March’20. The said amendments will facilitate investments, foster faith, and improve corporate compliance.  An onerous vestige of Companies Act (2013) is that the non-compliance of the minor rules and regulations lead directly to liabilities of criminal nature which could have been treated with fines and penalties of civil nature. The present amendment set forth by the Government of India will give the Corporate Sector an opportunity to perform business activities in ease, with less complications and limited hindrances at a time.

Background

The Ministry of Corporate Affairs in 2018 set up the Company Law Committee (CLC) to review the Companies Act (2013) and the regulatory framework under the same. It was constituted under the chairmanship of Mr. Injeti Srinivas. The committee’s primary work was to review the Company Act (2013) and to make recommendations based on its reviewing. The report was submitted in August 2018. The report was of the view that certain amendments could be brought in the Companies Act (2013) concerning the cognizable offences. The company recommended decriminalization of certain minor offences and kept its respective view regarding the Corporate Social Responsibilities (CSR) of the firms coming under the purview of the said act.

Following the report of the Company Law Committee (CLC), the 2019 amendment of the Companies Act decriminalized 16 out of 81 sections to mere civil violations. The amendment of 2019 changes the status the said acts which are criminal in nature and converts them into monetary fines and penalties levied on them in case of non-adherence of the selected said acts. The levying of those penalties have also been shifted from the court to In-House Adjudication Mechanism where adjudicating officers would be appointed by the central government. The work of those officers would be to determine and identify the offences committed by the firms and enable the firms to represent, communicate and resolve their disputes in an effective and efficient manner without any hindrances in the process.

The Companies (Amendment) Bill, 2020

The amendments proposed by the Company Law Committee (CLC) for decriminalization of compoundable offences can mainly be categorized into three broad categories.

  1. Removal of a charging provision which is imposing a criminal penalty.
  2. Removal of imprisonment as a punishment for an offence and categorizing them into civil wrong which is punishable with fines.
  3. Rationalizing the amount of fine prescribed under the act for the commitment of an offence.

Proposed changes which play a major role in this amendment bill are as follows –

  • With respect to the decriminalization of the act, the recommendations were only limited to a number of compoundable offences. No changes were made to offences relating to serious frauds, matters pertaining to public interests and the offences which are non-compoundable in nature.
  • The proposed amendment of 2020 also deals with omitting of 9 offences relating to non- compliance of acts. The offences are related to winding up of companies, making corrections in the register of security holders and the redemption of debentures.
  • The Amendment also aims at converting 23 compoundable offences which results in imprisonment into civil wrongs. It also aims at converting penalties which are criminal in nature to penalties which are civil. The removal of imprisonment will allow the businessmen of India to invest freely without any fear thereby increasing the investments made.
  • The Companies (Amendment) Bill of 2020 aims at reducing the quantum of penalties which is associated with 22 offences. The proposed bill also aims at changing the monetary nature of the penalties from criminal nature to civil nature. The amount imposed on non-adherence may be increased or reduced as per the situation pertaining at hand.

Comment

The main motive of decriminalization of offences under this act is to facilitate trade and businesses in the country. Since India is a Corporate hub with number of Multi National Companies with many of the companies starting their legacy in the country, Foreign Direct Investment (FDI) plays an important role in the process. The move will help India in accumulating huge amount of FDI as there will be less restriction in conducting business. Decriminalizing of the offences under this act will help in increasing corporatization of many small ventures, boost investments and boost the confidence of both global and international players in the Indian market. The ordinance for decriminalizing the offences under this act is an appreciable step taken by the central government which is well intended for the company, investors and the stakeholders with the potential of conferring long term benefits by facilitating the ease of conducting business. The aim of Companies (Amendment) Bill, 2020 is to mitigate the complexities and delays which are accompanied during the criminal proceedings, and also to expedite the default process in way of fines and penalties as a substitute to criminal trials. The state is also benefitting monetarily from the collection of fines and penalties. The state is saving itself for deploying human resources from its side during the proceedings of the criminal trials. The passing of such an ordinance will be an effective and efficient step to ease the highly regulated corporate sector of India.

Aishwarya Says:

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