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Companies Amendment Bill 2020 introduced in Lok Sabha March, 2020

On 17th March 2020, the Government has introduced the Companies (Amendment) Bill, 2020 (“Bill”) in the Lok Sabha to further amend Companies Act, 2013 (“Act”) proposing various changes pertaining to removing criminality from most of the offences under the Act and offering simpler penalty regime for businesses as well as paving way for direct overseas listing of Indian companies.

The key amendments introduced in the Bill, inter alia, are listed below:

  • The Government proposes to decriminalize certain offences under the Act, for instance the defaults which can be determined objectively, and which otherwise lack any element of fraud or do not involve larger public interest.
  • In consultation with the Securities and Exchange Board (SEBI), the Government shall exempt certain class of companies from the definition of “listed company”, mainly for listing of their debt securities.
  • Certain new provisions have been introduced thereby allowing payment of adequate remuneration to non-executive directors in case of inadequacy of profits in a company, by aligning the same with the provisions for remuneration to executive directors in such cases.
  • Relaxation in obligations relating to imposition of higher additional fees for default on two or more occasions in submitting, filing, registering or recording any document, fact or information as provided under the section 403 of the Act.
  • The Bill also seeks to extend the applicability of section 446B, relating to lesser penalties for small companies and one person companies, to all provisions of the Act which attract monetary penalties and also extend the same benefit to Producer Companies and start-ups.
  • The Bill further provides that the companies having Corporate Social Responsibility (CSR) spending obligation up to fifty lakh rupees shall not be required to constitute the Corporate Social Responsibility Committee and to allow eligible companies under section 135 to set off any amount spent in excess of their Corporate Social Responsibility spending obligation in a particular financial year towards such obligation in subsequent financial years.
  • The Bill requires specified classes of unlisted companies to prepare and file their periodical financial results at frequency that will be notified later. This provision is aimed at improving corporate governance. The idea is to bring more transparency into the affairs of closely held companies, which are at times used by major shareholders in companies with large public interest to divert funds through transactions that are not on arm’s length basis.
  • The provisions of the Bill allow direct listing of securities by Indian companies in permissible foreign jurisdictions as per the rules to be prescribed. The said amendment will possibly help startups to tap overseas markets for raising capital.
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