Companies

Bill to amend companies law to be re-introduced in Parliament

Our Bureau New Delhi | Updated on July 17, 2019 Published on July 17, 2019

Commerce and Railway Minister Piyush Goyal (left) and Information and Broadcasting Minister Prakash Javadekar addressing a press conference after the Cabinet meeting in New Delhi on Wednesday   -  Kamal Narang

Changes will aim to de-congest NCLT, propose steps to curb shell companies

The Cabinet on Wednesday approved re-introduction of a Bill to amend the Companies Act 2013. The Bill will replace the Ordinance promulgated in February this year and likely to be tabled during the on going session of Parliament.

Information and Broadcasting Minister Prakash Javdekar said the proposed amendment will lead to further promotion of ease of doing business, de-clogging of the National Company Law Tribunal and special courts, strengthening corporate governance standards and strengthening of enforcement with focus on serious cases of violations of the Act and enhanced compliance by the corporate.

The Narendra Modi-led government, in its first term, introduced the Bill and got it passed in the Lok Sabha, but could not get it passed in the Rajya Sabha and thereafter the Bill lapsed with the dissolution of the 16th Lok Sabha.

Changes in 29 sections

The new Bill proposes amendment in 29 sections along with two new sections. The amendments aim to address the need to impose civil liability for technical & procedural defaults of a minor nature and to plug gaps in the corporate governance & enforcement framework covering a wide range of issues such as re-categorisation of 16 minor offences as purely civil defaults which will de-clog special courts. It also proposes transfer of certain routine functions from NCLT to the Central government such as dealing with applications for change of financial year and conversion from public to private companies.

In order to curb the menace of shell companies, the Bill proposes making non-maintenance of registered office and non-reporting of commencement of business grounds for striking off the name of the company from the register of companies. There will be stringent provisions with reduced timelines for creation and modification of charges. Also, breach of ceiling on directorships will be made a ground for disqualification.

The changes are expected to lead to greater compliance by corporates, de-clogging of the special courts, de-clogging of the NCLT and effective enforcement. At present, around 60 per cent of the 40,000-odd cases pending in courts pertain to sections dealing with procedural lapses that are proposed to be shifted to in-house adjudication mechanism thereby incentivising compliance by corporates.

Compounding cases

As a result of the amendments brought in, in future, the compounding cases load on NCLT will also come down significantly. The existing cases will be withdrawn from special courts by bringing out an amnesty scheme as there are inherent benefits in prescribing civil liabilities for procedural lapses instead of undertaking a criminal trial.

Analysis of data available demonstrates that most of the cases initiated/ pending relate to procedural lapses such as non-filing of financial statements and non-filing of annual returns etc. It was felt that if such violations are re-categorised and allowed to be adjudicated in an in-house mechanism through payment of monetary penalties, the burden on special courts would be drastically reduced and more effective and speedy progress of the more serious cases would be possible. This would also allow ROCs to more effectively pursue action against serious offences, it is also proposed to amend the rules to ensure that adjudicating officers (Registrar of companies) dispose off adjudicating proceedings within stipulated time limits which would have to be rigorously followed.

Published on July 17, 2019
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