Committee set up to Review Offences under the Companies Act, 2013 submits its report to the Minister of Finance & Corporate Affairs
The Committee on Review of offences under Companies Act 2013 (“CRCA”) has presented a detailed report to the Minister of Finance & Corporate Affairs with recommendations to bring about a change with reference to the penalties and adjudication process under Companies Act, 2013 for achieving better corporate compliance.
Key Recommendations under the Report:
* With reference to compoundable offences, the following classifications have been made:
- Category I: Offences resulting because of non-compliance of order or direction of the Central Government/NCLT/RD/RoC.
- Category II: Those resulting because of not maintaining certain important records in the registered office of the company.
- Category III: Offences resulting from defaults because of non-disclosures of interest of persons to the company vitiating the records of the company.
- Category IV: Offences resultants of defaults related to certain corporate governance norms.
- Category V: Offences arising out of technical defaults in intimating certain information through filing forms with the RoC or in sending of notices to the stakeholders.
- Category VI: Offences arising because of substantial violations affecting the ‘going concern’ nature of the company or are contrary to public interest or has serious impact on the stakeholders.
- Category VII: Those arising due to defaults related to liquidation proceedings.
- Category VIII: Offences made punishable through an omnibus clause.
- With respect to Adjudication of Penalties:
- The Committee has recommended the levy of civil penalties for certain categories of default in comparison to initiation of criminal proceedings due to the inherent benefit of the non-requirement of proving mens reas associated with a civil penalty.
- Requirement for attendance of the defaulting officers during adjudication proceedings.
- Creating an infrastructure for e-proceedings.
- When defaults are of continuing nature, a penalty for each day’s delay has been recommended.
- While levying penalty, the adjudicating officer shall also direct the defaulter to make good the default whenever he thinks fit.
- It also proposed that a new section 454A be inserted to provide for a penalty in relation to a default that has been imposed on a person under the provisions of the Companies Act, 2013 and the if the same default is committed again within a period of 3 years from the date of original default, then the defaulter will be liable for second and every subsequent defaults for an amount equal to twice the amount provided for such default under the relevant provision of Companies Act, 2013.
* Suggested ways for de-clogging the NCLT:
- Enlarging the jurisdiction of the Regional Director by enhancing the pecuniary limits for compounding of offences under section 441 of the Companies Act 2013 and;
- Allowing the Central Government instead of NCLT to approve the alteration of financial year of a company under section 2(41) and conversion of public companies into private companies under section 14 of the Act.
- A recommendation has been made for inserting a provision for voluntary revision of financial statements or Board’s report without NCLT’s approval so that only matters of critical importance is introduced to the NCLT for prior permission.
- Restructuring of Corporate Offences to relieve Special Courts from adjudicating routine offences by shifting jurisdiction of special courts to an in-house E-adjudication framework by instituting a transparent online platform for E-adjudication and E-publication of orders and necessitating a concomitant order for making good the default at the time of levying penalty, to achieve better compliance.
* Recommendations relating to corporate compliance and corporate governance:
- Declaration of commencement of business provision to tackle the problem of ‘shell companies’.
- Greater disclosures with respect to public deposits exempted under section 76 of the Act.
- Non-maintenance of registered office to lead to de-registration process.
- Holding of directorships beyond permissible limits to disqualify such directors and impose of a cap on independent director’s remuneration to prevent a pecuniary relationship affecting independence on the Board of the Company.
We will keep you posted of further developments in this regard.