New Delhi: In a major decision, the Union cabinet on Wednesday approved a major overhaul in the criminal provisions in the Companies Act of 2013 to reassure the business community that they will not be hauled up if there was no malafide intent.
Finance ministry has recommended 72 changes in 65 sections of the Companies Act, the idea is to ensure that there is greater ease of doing business, said Finance Minister Nirmala Sitharaman.
“Lot of consultation happened before and after the budget and a group of ministers (GoM) went through the Companies Act to see that how many sections are there which have something that worries the business,” said Finance Minister Nirmala Sitharaman after a meeting of the Union cabinet in Delhi.
“In this set of amendments, the priority is to decriminalise the Act,” she said.
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“The majority of what is being changed is to remove those particular sections, or those technical requirements, all of which result in giving the form of criminality to the offence which may not be intended at all,” explained the finance minister.
There are 66 compoundable offences in the Companies Act, and the new amendments will recategorise 23 of them so that they can be dealt with by an in-house mechanism.
Finance minister said the government will completely omit seven compoundable offences from a total 66 such offences and punishment for 11 other compoundable offences will only be limited to a minor fine.
“In these 11 cases, there will be no imprisonment,” she said.
While five other offences will be dealt through an alternative framework and quantum of penalties in respect of six other defaults that have already been decriminalized has been further reduced.
Jail term for grave offences to stay
Though the government has approved a major overhaul of criminal offences under the Companies Act to reassure the business community and increase the ease of doing business but the jail term has not been completely done away with.
“For grave offences like frauds, the provision of imprisonment will be there in the Companies Act,” said Injeti Srinivas Corporate Affairs Secretary.
“There is a provision of maximum imprisonment of seven years in the Act,” he told ETV Bharat.
What changed in Companies Act in last 2 years
The Union government has brought down the number of total penal provisions in the Companies Act from 134 before 2018 to 124 in the 2020 Bill.
Number of compoundable offences has been brought down to 31 from 81 earlier. However, the number of non-compoundable offences will remain the same at 35 but in a big relief for the companies, the number of defaults that can be handled through internal mechanism will be increased from 18 to 58.
Ease of doing business: Govt tweaks CSR compliance rules
In a major relief for the corporate sector, the Union cabinet has approved several changes in the CSR provisions that require the companies to spend a part of their profits on philanthropic activities.
The proposed changes will not only exempt the companies from constituting a CSR committee below a threshold level but they will also permit them to carry forward their CSR expenditure to next year if they spend more money on CSR activities than their legal obligations for the year.
“If a company is required to spend up to Rs 50 lakh on CSR activities in a year then it will not need to constitute a CSR committee,” said finance minister Nirmala Sitharaman.
The government has also accepted the demand by the corporate sector to allow them to carry forward their expenditure on CSR activities if they spend more than 2% of their profits on CSR work in a year.
Nirmala Sitharaman said if a company does something, for example builds a hospital under the CSR activity, which requires more upfront expenditure, then it will be allowed to carry forward the additional expenditure, the expenditure above the statutory requirement, to the next year.
(Article by Senior Journalist Krishnanand Tripathi.)
