De-criminalisation of menial offences comes into force

The Ministry of Corporate Affairs constituted a Company Law Committee in the year 2019, which gave several suggestions. These suggestions were incorporated in The Companies (Amendment) Act, 2020, which received Presidential assent in September. The Central government notified it on December 21, 2020, 17 more provisions of the Amendment Act into force.

The major thrust of the provisions put in force was decriminalisation of the Companies Act, 2013, and lightening rigour of penalties for ease of business. However, it is a test of time to see how far the transformation of criminal liability into civil liability would be successful in checking corporate misconduct in the era of rising issues of proper corporate governance.

The overall pendency of cases in courts has caused the committee to propose the Amendment Act that seeks to enforce and adopt a principle-based approach in removing the imposition of penal consequences. Cases of minute and technical defaults can be adjudicated by In-house Adjudication Mechanisms (IAM) as provided under section 454 of the Companies Act, 2013, without having to approach criminal courts. The ‘criminal liability’ was becoming more and more challenging to prove — a civil penalty, which comes as a cost to running a business, is deterrence enough.

There is good news for organisations operating as non-profit company (Section 8 company). The earlier stringent punishments, which included fine ranging from ₹10 lakh to ₹1 crore, now stand withdrawn. Taking into account larger public interest and stakeholders, it was also recommended that if a prospectus is issued in contravention of the provisions, the company should be punishable with fine alone. Any default in this regard would be taken care of by the SEBI regulations. Any violation of the Section 90(10) of the Companies Act, which requires maintaining a register of significant beneficial owner, if the company fails to make a declaration, would now be subjected to fine alone.

Further, a contravention of Section 284 of the Companies Act, 2013, which deals with the failure of employees, promoters and directors to cooperate with the company liquidator, earlier attracted an imposition of a fine under the Act. However, the Amendment Act has removed such a fine and has empowered the company liquidator to apply to NCLT for necessary directions from it.

According to the Companies Act 2013, listed companies have to comply with the regulator, SEBI’s listing agreement. The Amendment empowers the Central government to exempt certain class of companies and securities from being considered as a listed company, in consultation with SEBI. This will ease the burden on companies from rigorous compliance and procedural requirements.

Needless to state, de-criminalisation of menial offences will have no negative impact on public interest but pave the way to reduce burden on courts by an effective IAM mechanism for disposal of cases.

The author is an advocate and CEO, Indian Law Watch