Government Moves to Decriminalize Non-Serious Offences Under Companies Act

The government presently had agreed to decriminalize non-compliance with corporate social responsibility spending norms, after which the Ministry of Corporate Affairs (MCA) is now planning to look at several additional penal provisions in the Companies Act, 2013, and treat them as civil offences. Previously, the ministry had constituted a 10 member committee to review whether few offences could be decriminalized as well as managed by means of an in-house mechanism, which includes levying penalties in matters of default. The intention was to allow the clogged up courts trial to pay more consideration towards offences of a severe nature.

The panel's report recommended re-categorizing 16 offences, out of 81 in the category of compoundable offences, that is, those punishable by fine and/or by imprisonment, as defaults carrying civil liabilities under the above mechanism. These modifications were introduced through the Companies (Amendment) Act, 2019, which received President Ram Nath Kovind's affirmation on 31st July.

The major changes are:

•    Failure towards filing an annual return shall now result in punishment rather than a fine or imprisonment. Under Section 92 of the Companies Act, for non-compliance, the corporation and its, every officer who is in default are liable to a penalty of Rs 50,000. The matter relating to continuing failure, a further fine of Rs 100 for each day shall be imposed subjected to a maximum of Rs 5 lakh. Violating corporations previously were punishable with penalty between Rs 50,000 to Rs 5 lakh, and defaulting officers punishable with imprisonment up to 6 months and/or an equivalent fine.

•    Non-compliance with Section 53 of the Companies Act, which excludes issuance of shares at a discount, is now punishable only with a fine rather than a penalty or imprisonment. Previously, the corporation was liable towards a penalty equal to the sum raised through the issue of shares at a discount or Rs 5 lakh, whichever was less. The corporation was also liable towards refunding all amounts received with interest @ 12% per annum to the shareholders.

•    Any individual guilty of intentionally providing any deceitful or incorrect information or knowingly suppressing any material information, then according to the provisions of Section 77 shall be liable for action under Section 447, which covers fraud. According to Section 77, every corporation creating a charge within or outside India, on its property or resources or any of its undertakings, are required to register the particulars of the charge with the Registrar within 30 days of its creation. The Act describes a charge as an interest or lien created on the resources or property of a corporation or any of its undertaking as security.

•    Under Section 447, the fine for frauds involving sums of at least Rs 10 lakh or 1% of the turnover of the corporation (whichever is lower) and those that don’t involve public interest has been increased to Rs 50 lakh from Rs 20 lakh. Earlier, violators were also punishable with a jail term of anywhere amid 6 months and 10 years.

•    A new Section 454A was introduced to deal with repeat offences. The punishment for second or subsequent default within a period of 3 years, whether by a corporation or corporate staffs, is pegged at "a sum equal to twice the amount of fine provided for such default under the relevant provisions" of the Companies Act.

Conclusion

The government is now planning towards expanding the list to cover all but the most serious offences. The MCA is reportedly planning to mull decriminalizing as many as 65 sections where the offences are compoundable or not serious in nature.

Author:

eStartIndia Team