The Companies (Amendment) Bill, 2020 was introduced in the Lok Sabha in light of the difficulties faced by companies due to the pandemic crisis. The Bill looks to amend various provisions of the Companies Act, 2013 and even adds new provisions. On September 29, 2020, the President of India notified his assent to the Bill, which was enforced as The Companies (Amendment) Act, 2020.
The Companies (Amendment) Bill, 2020: An Overview
The Companies (Amendment) Bill, 2020, was introduced in the Lok Sabha on March 17, 2020. The Bill is an outcome of the Company Law Committee constituted in September 2019. Shri Injeti Srinivas was announced as the Chairman of the Committee, and the Committee was set up to decriminalize certain offences under the Companies Act. After careful considerations, the Committee prepared a report of recommendations, on which the Bill was based. The Bill sought to amend 60 provisions and add 4 provisions to the existing Act, i.e. the Companies Act, 2013. The Bill also seeks to add a new chapter which will deal with Producer Companies. The following are the objectives for which the bill was introduced:
- To allow Public Companies to list their securities under certain prescribed classes under foreign jurisdictions
- To decriminalize certain activities classified as offences under the Companies Act, 2013
- To allow companies to carry forward of the amount set aside for Corporate Social Responsibility to the next financial year
- To empower the Central Government to de-list certain class of companies for the listing of debt securities
- To introduce provisions to govern Producer Companies
- To set up benches of the National Company Law Appellate Tribunal
The Bill was introduced by the Finance Minister Nirmala Sitharaman. She stated that the Bill would reduce the number of offences under the Act from 134 to 124. This will reduce the burden of litigation for small companies as well as the National Company Law Tribunal. The Bill was passed by the Lok Sabha on September 19, 2020, after which it was sent to the Rajya Sabha, which passed the bill on September 22, 2020, and then the bill received the Presidential asset on September 29, 2020.
Need for the Amendment: An Analysis
The Companies Act, 2013 is heavily criticized for not being able to provide a platform to conduct business smoothly and efficiently. The Bill was introduced as a means to establish easier business practices, a move that was required all the more due to the struggles of the Corporate Sector as a result of the Pandemic crisis. While the Committee was set up in September 2019, the onset of the Pandemic acted as a catalyst in expediting the introduction of the Bill. The major reason for the introduction of the Bill was the pendency of cases in the Courts and Tribunals. The National Company Law Tribunal (NCLT) and Appellate Tribunal (NCLAT) face the issue of overburdening of cases. It has been reported that thousands of cases are pending before the National Company Law Tribunal.
In 2019, Union Minister Anurag Singh Thakur announced that the Central Government was focusing towards the strengthening of the NCLT and NCLAT. Earlier this year, the Government announced the setting up of the Chennai bench of the NCLAT. The 2020 Amendment Act inserts a new provision, namely Section 418 A, that provides for the setting up of additional benches of the NCLAT. Additionally, the Act decriminalizes certain offences, particularly those offences under the Act which do not involve elements of fraud or are against the public interest.
The Amendment Act has reduced the penalties, which include fines and imprisonment, for certain offences. These amendments ensure that the Courts and Tribunals are less overburdened, and it also benefits the small businesses, who are granted some relief from litigations.
The 2013 Act continued to govern the Producer Companies using provisions from the Companies Act, 1956 however, the Bill removes the outdated provisions and introduces new provisions to govern the same. It also empowers the Central Government to order certain classifications of unlisted businesses to prepare and file their financial returns. These returns are further audited or reviewed.
Concluding Remarks
The Companies (Amendment) Act, 2020 is an addition to the long list of the amendments and changes made to the legislation governing Corporate Law in India. Corporate Law in India has not only seen various legislations but has also witnessed multiple amendments in the same. The Amendment brings about a high number of significant changes in the existing Legislation. The functions or objectives of the amendments can be divided into two major divisions.
While the provisions for setting up additional benches of the NCLAT would help lessen the burden by dividing the cases according to territorial jurisdiction. The decriminalization of offences can be misused. While small companies might truly benefit from the decriminalization of offences, large corporations may misuse such benefit from the amendments. The results of the amendments are yet to be observed in the coming times.
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