Suggestions of the Review Committee on penal provisions of the Companies Act, 2013

Why in discussion?

Recently, a committee constituted under the chairmanship of Corporate Affairs Secretary Injeti Srinivas for better corporate compliance has submitted its final report to the Finance Minister, reviewing the penal provisions of the Companies Act, 2013.

Major suggestions of the committee

• This report has a detailed analysis of all the penal provisions which were then divided into eight categories based on the nature of the offenses.
• The committee recommended that the current stringent law should continue for six of the above mentioned serious offenses, while the offenses falling under two categories of technical or procedural flaws should be decided by internal procedure.
• According to the committee, this will serve the dual purpose of promoting better compliance of ease of doing business and corporate.
• This will also reduce the number of lawsuits filed in special courts, resulting in speedy disposal of serious offenses and cases against serious offenders.

Note: It is worth mentioning that Article 447 related to corporate fraud will apply to those cases where fraud has been found.

• The National Company Law Tribunal (NCLT) has been recommended to be exempted by substantial reduction in the number of criminal offenses present before the Tribunal.
• It has been suggested to remove 16 of the 81 criminal offenses from the jurisdiction of special courts and create new categories of offenses for internal e-adjudication (so that the Authorized Decision Officers (Registrar of Companies) can impose penalty on the defaulters).
• While the remaining 65 criminal offenses will remain under the jurisdiction of special courts due to their potential misuse.
• In the same way, it has been recommended to maintain a status quo in respect of all undue crimes related to serious corporate crimes and to create a transparent online platform for e-decision and e-publication of decisions.
• Apart from this, the report covers some important things like corporate governance system, declaration of starting a business, protection of registered office, protection of depositors interest, registration and fee management, declaration of beneficial ownership and independence of independent directors. .
• According to the suggestions submitted by the committee, in order to prevent misuse and loss of public interest, especially under Section 76 of the Act, detailed information should be provided regarding the transaction free from the definition of public deposit.
• Additionally, once the company obtains restrictions under section 90 (7) relating to significant beneficial ownership, in the event of uncertainty of ownership of shares (if the rightful owner does not claim ownership within one year of such restrictions Is) Such shares should be transferred to the Investor Education and Protection Fund.
• In order to de-clog / free the NCLT, the committee has suggested to increase the jurisdiction of the Regional Director for circulation of offenses under Section 441 of the Companies Act, 2013.
• The committee has suggested drastic cuts in the time-limit for creation, rectification and filling of documents related to the creditor’s rights and the provision of stringent punishment in the event of not giving information.