Companies (Amendment) Ordinance, 2018 – A few key aspects

With India’s growing stature in the global setting and its rapid rise in economic prowess, the Ease of Doing Business Index[1] by the World Bank has become synonymous to the gold standard on the climate of business in a country. India has been on a constant endeavour to rationalize the various laws and simplify them to be in step with globally acceptable standards. India has in the recent past jumped nearly 30 places to breach the 100 mark in the Ease of Doing Business Index[2]. This can be attributed, amongst others, to the change in the law which regulates businesses in India. Earlier, with the introduction of the Insolvency and Bankruptcy Code (IBC) 2016, India had jumped over 30 places on the Index.

In furtherance of the various steps being taken, to make India a more business friendly country, the Ministry of Corporate Affairs in July 2018, constituted a ten-member committee (herein after referred to as the ‘Committee’) under the leadership of Injeti Srinivas. The committee included the likes of heads of various top-tier legal firms and other stalwarts of the financial economy.

The core purpose of the Committee was to conduct a detailed review of the various offences under the Companies Act, 2013. Since the introduction of the Act, various modalities has arisen while dealing with certain criminalising provisions. The committee has while deciding to retain the criminal nature of certain acts, has attempted to decriminalize and introduce provisions which will for allow in-house treatment of such offences by a way of levy of penalty.

The Committee Report[3] had a) examined various acts which can be decriminalized, b) supported the re-categorization of non-compoundable offences as compoundable offences, c) spoken for the improvement in the existing mechanism of levy of penalty, d) recommended the introduction of in-house adjudication mechanisms.

The President of India had on November 02, 2018 promulgated The Companies (Amendment) Ordinance, 2018 thereby amending some of the sections of the Companies Act, 2013 based on the Committee’s recommendations.

The Rejig of Corporate Offences

The committee has given various innovate recommendations which have been incorporated in the amendment. While maintaining the same amount of severity for serious offences has recommended the rationalization of other offences which are more technical and procedural in nature.  

The restructuring of Corporate Offences also attempts to relive the special courts of the burden of adjudication of routine offences by setting up in-house adjudication mechanisms including e-adjudication mechanisms. The main amendments include the following.

1. There exists 81 compoundable offences out of which the committee has recommend 18 to be re-categorised in-order to move them out of the jurisdiction of the special courts and to bring them under the ambit of an internal adjudication mechanism. The defaults under these re-categorized offences would be subject to a penalty by the adjudicating officer.
2. Treatment of offences which are non-compoundable and are of serious nature shall remain unchanged.
3. The list of remaining 65 compoundable offences shall continue under the jurisdiction of the Special Courts due to its nature and to avoid potential misuse.
4. A putting in place of a transparent system of adjudication where a platform for E-adjudication and E-publication of orders is made available.
5. Necessitating a concomitant order for making good the default at the time of levying penalty, to achieve better compliance.

It is pertinent to note that the Committee has observed that the re-structuring of the offences would help towards reducing the amount of cases filed in the special courts, thereby providing the courts more time to adjudicate serious matters and improve disposal rates. This would help towards improving the ease of doing business and corporate compliance. 

De-clogging the NCLT

The Committee has recommended to de-clog the National Company Law Tribunal (NCLT) have resulted in suitable amendments to enlarge the jurisdiction of the Regional Director while enhancing pecuniary limits for compounding of offences under section 441 of the Companies Act 2013.

It has further vested the Central Government the power to approve the alteration in the financial year of a company under section 2(41) and the conversion of public companies into private companies under section 14 of the Act.

Various amendments related to Corporate Governance and Corporate Compliance

A series of amendments which aim at improving corporate compliance which include declaration before the commencement of business, requirement of maintenance of a registered office, significant beneficial ownership, independent directors, and maximum number of directorships which have been implemented.

Re-introduction of the declaration of commencement of business provision in order to curb shell companies. The amendment requires a company to declare that it has received the value of the shares by the subscribers and has filed a form for verification of its registered office, within 180 days of incorporation.

Non-maintenance of a Registered office would set-off deregistration process. The registrar may satisfy himself with a physical verification and in case of default, the company’s name maybe struck off. This is with the attempt to reduce the existence of paper companies.

When a person has exceeded the maximum number of directorships he would be subject to disqualification. Therefore, holding of directorships beyond the threshold would have consequences.

A company is empowered to call upon a person who it reasonably believes as a beneficial owner and the nature of his holding. If the holder does not comply with the provisions, the amendment has made the punishment more stringent by making contravention punishable with fine or imprisonment or both instead of fine only.

Sherry Oommen