- Finance and corporate affairs minister Nirmala Sitharaman announced that the government was moving to decriminalise provisions of the Companies Act
- To enhance ease of doing business in the country as part of the government Covid-19 relief package.
- Government will remove criminal penalties from all provisions of the Companies Act, except provisions dealing with fraudulent conduct.
- A number of offences previously classified as compoundable offences, i.e. those offences that had either imprisonment or fines as punishments have had the imprisonment penalty removed.
- Some of these offences have been omitted altogether.
WHY THESE CHANGES?
- With the overhaul of Companies Act in 2014,
- A lot more regulations were introduced for better compliance and therefore a number of penal provisions with both civil and criminal penalties were introduced.
- As compliance levels improved and the government felt a need to boost ease of doing business the government started to relax criminal provisions.
- The move has been part of larger government efforts to boost ease of doing business since 2018.
WHAT ARE THE CHANGES?
- The number of compoundable offences under the Companies Act have come down to 31 from 81 prior to the 2018 amendment to the Companies Act.
- For e.g.
- Rrecently government decriminalised offences such as delays in filing CSR reports, or failure to rectify the register of members in compliance with orders from the NCLT.
- The number of compoundable offences under the Companies Act have come down to 31 from 81 prior to the 2018 amendment to the Companies Act.
- A number of these offences have been moved from needing to be prosecuted through the National Company Law Tribunals to being dealt with by the Registrar of Companies.
- The RoC is empowered to decide penalties for these offences and companies can appeal to the Regional Director (RD) of the Ministry of Corporate Affairs (MCA) to appeal or seek modifications to these decisions.
- This move would help free up the bandwidth of NCLTs to deal with cases dealing with insolvency and other higher priority matters.
- The total number offences to be dealt with the in- house adjudication mechanism has risen from 18 in 2018 to 58 proposed in the latest amendment.
WHAT ARE FURTHER PLANS?
- According to experts, the ministry is expected to come out with further measures to decriminalise provisions in the companies act particularly those relating to auditors.
- The MCA had announced that it would move towards removing criminal liability for issues such as negligence by auditors.
- The corporate affairs ministry is however currently in the process of seeking debarment of audit firms Deloitte as well as KPMG affiliate firm BSR & Co. for their alleged role in the IL&FS scam.
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