Why in News?

The Companies (Amendment) Bill, 2020 was introduced in the Lok Sabha in March 2020.

Why this Bill was introduced?

• The Ministry of Corporate Affairs (MCA) wanted to facilitate ease of doing business in India.
• It also wanted to decriminalise the Companies Act, 2013.
• Therefore, it introduced the Companies (Amendment) Act, 2019, and the Companies (Amendment) Bill, 2020.

What did the Companies Act, 2019 do?

• It decriminalised 16 sections of Companies Act, 2013 to civil violations.
• It eliminates the criminality of these violations by levying monetary penalties instead of criminal fines.
• Levying these penalties has been shifted from courts to in-house adjudication mechanisms (IAM) under Section 454 of the Act.
• The adjudicating officers who are to be appointed by the Central Government determine the offences.
• These officers also enable companies to promptly communicate, represent, and resolve defaults.

Why was the CLC, 2019 constituted?

• The Company Law Committee (CLC) was constituted to further decriminalise the 2013 Act.
• It decriminalises the technical and minor non-compliance.
• But, it retains the strict criminal enforcement for serious, fraudulent offences that jeopardise and prejudice public interest.
• This decriminalisation will instil confidence in both domestic and global players and boosts foreign investments.

What did the Companies (Amendment) Bill, 2020 propose?

• Based on the recommendations of the report, the Bill proposes to decriminalise the Act under the following frameworks.
• Re-categorization of 23 compoundable offences to the IAM -
• Offences that do not involve objective determination and that are easily determined by the MCA21 system may be treated as civil wrongs.
• The IAM framework will determine these offences.
• Omission of 7 compoundable offences - These offences proposed to be omitted are those that may be dealt with through other laws.
• Limiting 11 compoundable offences to criminal fine only - These are offences that are substantial enough to warrant criminal liability, but don’t warrant punishment by incarceration upon conviction.
• Alternate framework for 5 offences - This proposal could better achieve the intended aim of certain penal provisions in the Act with the company liquidator.
• For this, the corresponding provisions of the Insolvency and Bankruptcy Code (IBC) may be inserted.

What is the significance?

• Lesser penalties for certain offences: For this, the Section 446B is amended.
• Non-compliance by certain type of companies or by any of its default officer are only liable to one-half the penalty specified in the respective provisions.
• Benefit to IDs: The amendments are vital for Independent Directors (IDs) to dissociate them from personal liabilities of the operational lapses and violations.
• The Ministry’s notification directs that unless there is sufficient evidence, civil or criminal proceedings should not be initiated against the IDs.
• It added that if the proceedings were already initiated, they must be reviewed.
• These recommendations seek to accelerate the processes of rectifying defaults by paying penalties, instead of fighting a criminal trial.

What goals do these amendments seeks to achieve?

• These amendments are admirable steps towards the 3-pronged goal of:
  1. Reducing the burden on company courts,
  2. Ensuring investor interests, and
  3. Facilitating the ease of doing business while collaterally incentivizing senior management to remain invested.
• This could well be the step towards showing intent to incentivize domestic and global investments, especially post COVID-19.