The Companies (Amendment) Bill, 2020 (“Amendment Bill”) was introduced in the Lok Sabha (lower house of Parliament) in March 2020. The Government has announced that the next session of Parliament will be held from September 14, 2020 and the business for this session may include the Amendment Bill.
Set out below are some of the key changes proposed by the Amendment Bill, which aims to promote ease of doing business and “ease of living” for corporates.
1. De-criminalisation and reduction of fines: The report of the Company Law Committee (November 2019) had recommended that procedural, technical and minor non-compliances (particularly ones not involving subjective determinations) should be removed from the domain of criminal jurisdiction and should be made civil offences. To this end the Amendment Bill provides for removal of imprisonment and / or reduction / modification of penalties for certain offences, which include default in filing annual return, default in filing financial statements and contraventions with regard to related party transactions, etc.
2. Restricting the definition of “listed company”: Currently, “a company which has any of its securities listed on any recognised stock exchange” is considered a “listed company”. The Amendment Bill proposes to enable the Government to exclude certain class of securities from this requirement in consultation with the Securities and Exchange Board of India (“SEBI”).
3. Periodic financial results by unlisted companies: The Amendment Bill proposes to require certain unlisted companies (as may be prescribed) to prepare periodical financial results (either full audit or limited review) and have such results approved by the board of directors and filed with the Registrar of Companies within 30 days of the end of the relevant period. It is yet to be seen which categories of unlisted companies will be subject to this requirement. The criteria for such requirement could be similar to those thresholds which mandate appointment of independent directors, which are based on share capital, net worth or aggregate borrowings.
4. Listing of Indian companies on foreign stock exchanges: The Amendment Bill proposes to empower the Central Government to permit certain classes of public companies to issue certain classes of securities for listing directly on foreign stock exchanges in foreign jurisdictions. The Amendment Bill also proposes to empower the Central Government to exempt companies which issue shares for overseas listing from certain provisions of the Companies Act (such as the chapters governing prospectus and allotment of securities, share capital and debentures). The Ministry of Finance has issued a press release stating that the framework for such listing will be finalized by it in consultation with Ministry of Corporate Affairs, Reserve Bank of India and SEBI.
5. Minimum offer period for a rights issue: Under the current provisions of the Companies Act, the offer period for a rights issue is required to run for between 15 days and 30 days from the date of offer. The Amendment Bill proposes to incorporate flexibility to have an offer period shorter than 15 days to facilitate quicker fund raising. Private companies were already granted this flexibility (subject to consent of 90% of the members of the company).
6. Filing of resolutions by financial services companies: Section 117(3)(g) of the Companies Act mandates companies to file certain board resolutions with the registrar of companies. These include resolutions to grant loans, give guarantees or provide security in respect of loans. The 2017 Amendment Act exempted banking companies passing resolutions for the abovementioned matters in the ordinary course of business from this filing requirement. The Amendment Bill proposes to extend this exemption to any class of NBFCs and HFCs.
7. Set-off for CSR spending: The Amendment Bill proposes that if a company spends an amount over and above what is required in any financial year on CSR activities, the excess amount may be set-off in succeeding financial years (limit on how many years this set-off may be availed of will be prescribed by rules).
8. Exemption from constituting CSR Committee: The Amendment Bill also intends to provide that, if the amount that is required to be spent by a company on CSR activities is less than INR 50 Lakh, the requirement to constitute a CSR committee will not be applicable and the functions of the CSR committee will be discharged by the board of directors.
9. Benches of the National Company Law Appellate Tribunal: The Amendment Bill proposes to establish benches of NCLAT to be constituted by the chairperson of NCLAT. Benches may be established outside of New Delhi at such places notified by the Central Government in consultation with the chairperson. In furtherance of this, the Amendment Bill proposes removing the current limit of 11 members of NCLAT.
10. Exemption from declaration of beneficial ownership: The Companies Act requires that declarations be made to the relevant company in case of beneficial ownership not being the same as legal ownership. The Amendment Bill proposes to give the Central Government the power to exempt the applicability of these provisions to any class or classes of persons in public interest (unconditionally or subject to certain conditions).
The overall attempt of the Government appears to be to provide more flexibility and ease of operations for certain companies and to enable it to make exceptions and grant exemptions. However, the real impact of the changes will be clear only once the Government makes the relevant exceptions/ exemptions and the basis it chooses for doing so. Nonetheless, changes such as de-criminalisation and reduction of penalty, enabling framework for offshore listing, establishment of benches of NCLAT, etc. are a positive signal of the Government’s intent to simplify compliance regime and further promote ease of business.
Kashish Bhatia, Partner
Amitabh Robin Singh, Senior Associate