18 May 2020

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Central Government set to decriminalise minor technical and procedural defaults under Companies Act


In pursuance to objective of providing greater “Ease of Doing Business” to all stakeholders, Government decides to decriminalise the violations involving minor technical and procedural defaults. The decriminalisation of Companies Act violations includes shortcomings in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM. De-criminalization of technical & procedural violations under Companies Act will reduce the burden on criminal Courts and NCLT by shifting 16 offences sections to monetary penalty regime. The step would bring about greater transparency in corporate structure and foster better corporate compliance so as to enhance the efficiency of the processes under Companies Act, 2013. The amendments will be notified soon.

Majority of the compoundable offenses sections are to be shifted to internal adjudication mechanism (IAM) and powers of Regional Director (RD) for compounding will be enhanced. Seven compoundable offences altogether dropped and 5 to be dealt with under alternative framework. The Companies Act, 2013 regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company.

Through the Companies (Amendment) Act, 2019, changes were made in the Companies Act, 2013, to convert 16 criminal offences into civil wrongs. In continuation of the Government’s endeavour in similar directions, a Company Law Committee was constituted by the Ministry of Corporate Affairs in September, 2019, to further decriminalise the provisions of the Companies Act, 2013 based on their gravity. The Committee recommended amendments in the Companies Act, 2013 to remove criminality in case of procedural and technical defaults as well as defaults which can be determined objectively and which, otherwise, lack the element of fraud or do not involve larger public interest. The amendments seek to provide alternative methods of sanctions in some cases.

Tags : Technical default Decriminalization Amendment

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