Amendments to Companies Act gets green signal in Lok Sabha

Our Bureau New Delhi | Updated on July 26, 2019 Published on July 26, 2019

Finance Minister Nirmala Sitharaman at Parliament House on Friday   -  PTI

Amendments pertain to unspent CSR funds, de-clogging NCLT and curbing shell companies

Lok Sabha approved amendments in the Companies Act, which are intended to bring more discipline in the compliance of Corporate Social Responsibility and de-clogging the National Company Law Tribunal (NCLT).

“This set of amendments are aimed at ease of doing business for small, medium, and large companies,” Finance Minister Nirmala Sitharaman said while replying to the debate on the Bill. This Bill has 12 new amendments along with 31 amendments that were a part of the ordinance that was promulgated thrice — November 2018, January 2019 and February 2019.

One of the key provisions of the Bill talks about carrying forward the unspent corporate social responsibility (CSR) amount to a special account to be spent within three financial years. Sitharaman said that companies will be given a three-year window within which they will have to spend their CSR money and also disclose where the money was spent.

If companies do not comply with this rule, “they will have to move the money in an escrow account. If the company has not even thought of where to spend the money, it will go to a common account,” the Minister said.

As of now, companies above a certain threshold are required to spend at least two per cent of profit on CSR. Now, with the amendment, such unspent money after three years could go to Prime Minister’s National Relief Fund or any other fund set up by the Central government or the State governments for socio-economic development.

‘De-clogging courts’

The amendments also aim to address the need to impose civil liability for technical and procedural defaults of a minor nature and to plug gaps in the corporate governance and 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 to transfer some functions from NCLT to the Central government such as dealing with applications for change of financial year and conversion from public to private companies.

Shell 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. “Four lakh shell companies have been identified and deregistered in the last five years,” Sitharaman said.

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.

Published on July 26, 2019
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