Panel pitches for restructuring offences under companies law

By: | Published: August 28, 2018 5:23 AM

A government-appointed panel to review the penal provisions under the Companies Act and examine de-criminalisation of certain offences has suggested restructuring of corporate offences and an in-house adjudication mechanism so that courts get more time to deal with serious violations.

The 10-member committee, headed by the secretary at the Ministry of Corporate Affairs, Injeti Srinivas, submitted the report to finance and corporate affairs minister Arun Jaitley on Monday.

A government-appointed panel to review the penal provisions under the Companies Act and examine de-criminalisation of certain offences has suggested restructuring of corporate offences and an in-house adjudication mechanism so that courts get more time to deal with serious violations.

The 10-member committee, headed by the secretary at the Ministry of Corporate Affairs, Injeti Srinivas, submitted the report to finance and corporate affairs minister Arun Jaitley on Monday.

The panel also suggested disqualification of directors in case they have directorships beyond permissible limits and a cap on the remuneration of independent directors “in terms of percentage of income” in order to prevent any material pecuniary relationship.

The committee undertook a detailed analysis of all penal provisions, which were then broken down into eight categories based on the nature of offences. It recommended that the existing rigour of the law should continue for serious offences covering six categories. For lapses that are essentially technical or procedural in nature might be shifted to an in-house adjudication process.

“This would serve the twin purposes of promoting of ease of doing business and better corporate compliance. It would also reduce the number of prosecutions filed in special courts, which would in turn, facilitate speedier disposal of serious offences and bring serious offenders to book,” a release from the MCA said.

The cross-cutting liability under Section 447, which deals with corporate fraud, would continue to apply wherever a fraud is found, it said.

Apart from restructuring of corporate offences to relieve special courts from adjudicating routine offences, the panel has recommended re-categorisation of 16 out of 81 compoundable offences under the Act. This would be done by shifting them from the jurisdiction of special courts to an “in-house e-adjudication framework wherein defaults would be subject to levy of penalty by the authorised adjudicating officer (Registrar of Companies),” it said. Taking into account their potential misuse, the panel has suggested that the remaining 65 compoundable offences should continue to be under the jurisdiction of special courts.

A status quo has been recommended for all non-compoundable offences relating to serious violations, instituting a transparent online platform for e-adjudication and e-publication of orders.

The panel has also suggested de-clogging the National Company Law Tribunal (NCLT) through significant reduction in compounding cases before the tribunal.

In order to de-clog the NCLT, the panel has suggested expanding the jurisdiction of the regional director with enhanced pecuniary limits for compounding of offences under Section 441 of the Companies Act 2013 (the Act). It has also recommended vesting in the central government the power to approve the alteration in the financial year of a company under Section 2(41); and conversion of public companies into private companies under Section 14 of the Act.

In addition, the report touches upon certain essential elements related to corporate governance such as declaration of commencement of business, maintenance of a registered office, protection of depositors’ interests, registration and management of charges, declaration of significant beneficial ownership, and independence of independent directors.

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