MCA seeks to move several non-compliance offences under the Companies Act to Civil Offence

Highlights:

  1. Ministry of Corporate Affairs is looking forward to consider number of other penal provisions in the Companies Act, 2013 and rule them as civil offences. 
  2. The panel submitted report, suggesting to re-categorise 16 offences out of 81 in the category of compoundable offences
  3. Non-compliance under Section 53 of the Companies Act, that restricts issuance of shares at a discount is now punishable with a fine rather than  penalty or imprisonment

Days ago government decided to decriminalise non-compliance with corporate Social Responsibility (CSR) spending norms and now the Ministry of Corporate Affairs is looking forward to consider number of other penal provisions in the Companies Act, 2013 and rule them as civil offences. 

Last July, the ministry formed a 10-member committee led by Secretary of Corporate Affairs, Injeti Srinivas, to assess if some of the offences could be decriminalized and handled by charging penalties in cases of default. 

The panel submitted report, suggesting to re-categorise 16 offences out of 81 in the category of compoundable offences, that is nothing but those offences which are punishable by fine or imprisonment as defaults carrying civil liabilities. These changes have been proposed to the President of India, Ram Nath Kovind, through the Companies (Amendment) Act, 2019, on July 31.

Here are some of the biggest changes:

  • Any failure to file an annual return will consequently result in a penalty rather than fine or imprisonment. Under Section 92 of the Companies Act, in case of non-compliance, the “company and its every officer who is in default shall be liable to a penalty of Rs 50,000″. In case of continuous failure to file, further INR 500 will be charged, subject to a maximum of Rs 5 lakh. Previously, violation of companies were punishable with fine ranging between INR 50,000 to 5 lakh and defaulting officials were charged with imprisonment up to 6 months or an equivalent level of fine.
  • Non-compliance under Section 53 of the Companies Act, that restricts issuance of shares at a discount is now punishable with a fine rather than  penalty or imprisonment. Prior to this, the company used to be liable to a penalty equivalent to the amount raised by the issue of shares at a discount or INR 5 lakh (Whichever was less). The company was also supposed to return all the amount received with interest at the rate of 12% per annum to its shareholders.
  • Any individual found guilty of wilfully committing false or wrong information or deliberately concealing any material information – in accordance with the provisions of Section 77 would be entitled for action under Section 447, that covers fraud. As per Section 77, every company coming up with a charge within or outside country, on its assets or property or any of its undertakings has to register the particulars of the charge with the registrar within 30 days of its creation. The Act elucidates a charge as an interest or lien generated on the property or assets of a company or any of its undertaking as a security.
  • Under Section 447, the penalty charged for frauds that involve amount of minimum INR 10 lakh or 1% of the turnover of the company (Whichever is less) and those that do not involve public interest has been raised from INR 20 lakh to INR 50 lakh. Earlier, violators were punishable with a jail term between 6 months to 10 years.
  • A new section of 454A has been established to prevent repeat offences. If the offences repeat within a period of 3 years by a company or corporate employees is fixed at “an amount equal to twice the amount of penalty provided for such default under the relevant provisions of the Companies Act”

The government seeks to plan to expand the list and cover serious offences. The MCA is looking forward to decriminalise as many as 65 sections under the category of compoundable offences. 

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  1. Govt moves to decriminalise non-serious offenses under Companies Act
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