June 10, 2023

Companies Act: Welcome Amendments

By Ashwini Agarwal
First publised on 2020-03-13 12:47:33

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The government has done well to accede to the long-standing demands of the corporate world in making amendments to the Companies Act to decriminalize technical and procedural offences. The said Act contains hundreds of rules to which companies must comply. Most of these are time-bound. Several of them are technical and procedural in nature, meaning that non-compliance does not either suggest that the company has something to hide from the government or its shareholders. It could be a simple matter of things getting delayed or being overlooked. There is no doubt it is a fault on part of the companies as having registered as one, they are expected to follow all laws and comply with all the rules. Yet, to treat all defaults with the same stick and prescribe jail terms and stiff penalties for such offences is not fair.

The government has now omitted seven such offences, changed the category of 23 others to enable their solution through an in-house adjudication framework, jail terms have been removed from 11 and only fines will be imposed, alternative mechanisms will be used in dealing with five others. Six such offences were decriminalized earlier and the fines imposed for them have now been reduced. In managing the affairs of a company it is necessary to have criminal provisions for fraud or any action committed with the intention of deceiving stakeholders as those running the company are doing so as trustees of public funds. But when there is no mala fide intention behind certain offences, it is not proper to prescribe jail terms for their violation.

These amendments, together with others such as changes in CSR rules that will ease the compliance burden and allowing Indian public companies to list their securities directly in overseas markets will improve the ease of doing business and perhaps reduce the load on the judicial system as simplification and quicker resolution will result in lower court cases.