Govt amends company law; case load expected to reduce by 60%

New Delhi: The government on Friday amended various provisions of the companies law through an ordinance, a move that is expected to reduce pendency of cases before special courts by 60 per cent besides bringing down applicable penalties for small companies.

The ordinance amending the Companies Act, 2013, has been promulgated with twin objectives of "promotion of ease of doing business along with better corporate compliance", an official release said.

President Ram Nath Kovind gave his assent for the ordinance on Friday after the Union Cabinet cleared the proposal for promulgating it on Thursday. The amendments have been made on the basis of recommendations made by a government-appointed panel that reviewed the offences under the Act.

With the latest amendments, jurisdiction of 16 types of corporate offences would be shifted from the special courts to in-house adjudication.

This is "expected to reduce the case load of special courts by over 60 per cent, thereby enabling them to concentrate on serious corporate offences. With this amendment, the scope of in-house adjudication has gone up from 18 Sections at present to 34 Sections of the Act," the Corporate Affairs Ministry said in the release.

Speaking at an event here, Prime Minister Narendra Modi said the companies law has been amended to give relaxation for Micro, Small and Medium Enterprises (MSMEs) from legal complexities.

According to him, there were provisions in the Act because of which small mistakes could led to criminal proceedings against MSMEs.

"Sometimes entrepreneurs landed in jail also which had impacted their respect and status... to rectify small mistakes they have to run from pillar to post in courts," he said.

Referring to the ordinance, Modi said all these rules have been changed by and "now you (MSMEs) don't have to run to courts to rectify small mistakes. You can visit the concerned departments and follow easy processes and rectify these mistakes".

The ministry in its release said the penalty for small as well as one person companies has been reduced to half of the amount that is applicable for normal companies.

There would be a "transparent and technology driven in-house adjudication mechanism on an online platform and publication of the orders on the website.

According to the release, the in-house adjudication mechanism would be strengthened by "necessitating a concomitant order for making good the default at the time of levying penalty, to achieve the ultimate aim of achieving better compliance".

The ministry said there would be de-clogging the National Company Law Tribunal (NCLT) by way of expanding the pecuniary jurisdiction of Regional Director.

Offences where the penalty would be up to Rs 25 lakh would be dealt by the Regional Director whereas the earlier limit was Rs 5 lakh.

Besides, the central government would have powers to approve the alteration in the financial year of a company as well as to approve cases of conversion of public companies into private ones.

As per the release, the panel's recommendations related to corporate compliance and corporate governance include re-introduction of declaration of commencement of business provision to better tackle the menace of shell companies.

Other changes would provide for greater disclosures with respect to public deposits, more accountability regarding filing documents related to creation, modification and satisfaction of charges.

Non-maintenance of registered office would trigger de-registration process for a company and holding of directorships beyond permissible limits would attract disqualification of such directors.