Decriminalization of various offences under Companies Act, 2013

In order to promote better corporate compliance and facilitate ease of doing business in India, the Ministry of Corporate Affairs (“MCA”) has decriminalized various offences under the Companies Act, 2013 (hereinafter referred as “Act”) by introducing the Companies (Amendment) Act, 2019, and the Companies (Amendment) Act, 2020. The brief timelines are as follows: The aspects of decriminalization of various offences under the Act are as follows: The above mentioned aspects are discussed in detail below:

A. Re-categorizing of offences from compoundable offences

Authority for Compounding: Where maximum amount of fine for an offence does not exceed Rs. 25 Lakhs it shall be compounded by Regional directors whereas for fine exceeding Rs. 25 Lakhs shall be compounded by The Tribunal I.e. National Company Law Tribunal (NCLT) Important terms:

The below mentioned 16 compoundable offences were shifted to an IAM (i.e. replacement of the word fine or Fine/Imprisonment with Penalty) through Companies (Amendment) Act,2019:

  1. Section 53(3) Prohibition of issue of shares at a discount
  2. Section 64(2) Notice to be given to Registrar for alteration of share capital
  3. Section 92(5) Annual return
  4. Section 102(5) Statement to be annexed to notice
  5. Section 105(3) Proxies
  6. Section 117(2) Resolutions and Agreements to be filed
  7. Section 121(3) Report on annual general meeting
  8. Section 137(3) Copy of financial statement to be filed with Registrar
  9. Section 140(3) Removal, resignation of auditor and giving of special notice
  10. Section 157(2) Company to inform Director Identification Number to Registrar
  11. Section 159 Punishment for Contravention – in respect of DIN
  12. Section 165(6) Number of Directorships
  13. Section 191(5) Payment to Director for Loss of Office, etc., in connection with transfer of undertaking, property or shares
  14. Section 197(15) Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits
  15. Section 203(5) Appointment of Key Managerial Personnel
  16. Section 238(3) Registration of the offer of scheme involving transfer of shares

Further the below mentioned 18 compoundable offences were shifted to IAM by The Companies (Amendment) Act,2020.

  1. Section 56(6) Transfer and transmission of securities
  2. Section 86 Punishment for contravention
  3. Section 88(5) Register of members, etc.
  4. Section 89(5) & (7) Declaration in respect of beneficial interest in any share
  5. Section 90(11) Register of significant beneficial owners in a company
  6. Section 124(7) Unpaid Dividend Account
  7. Section 134(8) Financial statement, Board’s report, etc.
  8. Section 135(7) Corporate Social Responsibility
  9. Section 143(15) Powers and duties of auditors and auditing standards
  10. Section 172- Punishment
  11. Section 178(8)- Nomination and Remuneration Committee and Stakeholders Relationship Committee
  12. Section 184(4) Disclosure of interest by director
  13. Section 187(4) Investments of company to be held in its own name
  14. Section 188(5) Related party transactions
  15. Section 204(4) Secretarial audit for bigger companies
  16. Section 232(8) Merger and amalgamation of companies
  17. Section 405(4)- Power of Central Government to direct companies to furnish information or statistics
  18. Section 450- Punishment where no specific penalty or punishment is provided

B. Removing imprisonment under listed sections and subjecting the offences to fine alone

Through the Companies (Amendment) Act, 2020, the imprisonment provision was removed while retaining the criminal liability to payment of fine alone for the offences under below mentioned sections:

  1. Section 8(11) – Formation of companies with charitable objects, etc.
  2. Section 26(9) – Matters to be stated in prospectus
  3. Section 40(5) – Securities to be dealt with in stock exchanges.
  4. Section 68 (11)– Power of Company to purchase its own securities
  5. Section 128(6) – Books of Account, etc., to be kept by Company
  6. Section 147(1) – Punishment for contravention
  7. Section 167(2) – Vacation of office of Director
  8. Section 242(8) – Powers of Tribunal
  9. Section 243(2) – Consequence of termination or modification of certain agreements
  10. Section 347(4) – Disposal of books and papers of company
  11. Section 392 – Punishment for contravention

C. Provision of alternate mechanism for the offences and removal of penal provisions from particular sections:

The Companies (Amendment) Act, 2020 has provided alternate mechanism for the supervision of certain offences. Further omitted offences mentioned below (from point ii to vii) from the Act and provided NCLT to exercise its contempt jurisdiction in relation to these offences that related to non-compliance with orders of the NCLT. Section 425 of the 2013 Act lays down the powers of NCLT in relation to contempt.

S. No Section Pre-amendment Post Amendment
i. Section 16 (3) Rectification of name of company If a company makes default in complying with any direction given under section, the company shall be punishable with fine of one thousand rupees for every day during which the default continues and every officer who is in default shall be punishable with fine which shall not be less than five thousand rupees but which may extend to one lakh rupees. If a company is in default in complying with any direction given under section, the Central Government shall allot a new name to the company in such manner as may be prescribed and the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name, which the company shall use thereafter
ii. Section 48 (5) Variation of shareholders’ rights Where any default is made in complying with the provisions of this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both Omitted

(a) forward a copy of the order, within thirty days from the date thereof, to the Registrar who shall record the same; and

D. Reduction in penalty under the listed sections

Through Companies (Amendment) Act, 2020, the amounts of penalties on a Company and Officers in default (“OID”) have been reduced to a greater extent in the sections mentioned below:

S. No. Section Offences Changes
I Section 64 – Notice to be given to Registrar for alteration of share capital In case a company fails to file a notice of alteration or increase or redemption, of share capital with the Registrar within 30 days. · Reduction in the amount of penalty on company and every OID from Rs. 1,000 to Rs. 500 for each day during which default continues.

Disclaimer: The entire contents of this document have been developed based on relevant provisions and are purely the views of the authors. Though the author has made utmost efforts to provide authentic information, however, the authors and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and consequences of anything done or omitted to be done by any such person in reliance upon the contents of this document.

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