Another CAB: Companies Amendment Bill 2020

Minister of State Anurag Thakur introduced the Companies (Amendment) Bill 2020 in the Lok Sabha on 17th March 2020 with an aim to improve ‘ease of doing business’. He said the Bill intends to decriminalize minor offences that do not harm the larger public interest and inherently lack elements of fraud.

Crux of the Matter

What is the Bill About?
Companies (Amendment) Bill 2020 aims at decriminalizing certain sections of the Companies Act. Primarily, the sections that have “minor procedural and technical defaults which do not involve fraud, injury to the public interest or non-compoundable offences” are proposed to be amended. It also proposes to ease the norms for direct foreign listing by Indian companies.

Key Takeaway

  • The Bill proposes to remove criminality in 35 procedural defaults, omit 7 compoundable offences, reduce imprisonment period in 11 provisions, and lower penalties for 6 offences.
  • Small firms, one person companies, and producer companies will attract lesser monetary penalties than before.
  • Specified classes of unlisted companies will have to prepare and submit their financial results on a periodic basis that will be announced later, thereby increasing the corporate governance of unlisted companies.
  • Companies whose CSR obligation is below Rs. 50 lakh are exempt from forming a CSR committee.
  • A company that spends more than the obligatory CSR amount, can now set off the additional spending for the amount to be spent in succeeding financial years as per the rules prescribed.
  • Indian companies can list their securities in selected foreign markets directly.


Outcome
Currently, India ranks 63rd in Ease of Doing Business Index of the World Bank. By removing or reducing criminality of certain defaults, the amendments aim at creating an environment that promotes ease of doing business. It also aims at enhancing the transparency and Corporate Governance of small and large companies with amendments like periodic filing of financial statements for unlisted companies.

The penalty laws and Corporate Social Responsibility (CSR) norms would be liberalized, offering flexibility to the companies. The opposition argued that the proposed CSR changes would be a dilution and that the other changes are favoring only the corporates. However, MoS Thakur said that the CSR amendments would ease the process of following CSR obligations and that there was no intent of diluting it. The government wants businesses to burgeon through ethical and honest business.

Curiopedia

CSR in India – The only mandatory CSR law in the world thus far was passed by the Indian parliament in 2013 as Article 135 of the Companies Law. According to that bill, all firms with a net worth above 5 billion rupees (approx. $75 million), turnover over 10 billion rupees (approx. $150 million), or net profit over 50 million rupees (approx. $750,000) are required to spend at least 2% of their annual profits (averaged over three years) in CSR. The law requires that all businesses affected establish a CSR committee to oversee the spending. Prior to this law’s passage, CSR laws applied to public sector companies only. More Info

Types of Companies
Sole Proprietorship, also known as a trader firm or proprietorship, is a business form that is owned and run by one individual. A sole proprietor may use a trading name or business name other than his or her name.

HUF (Hindu Undivided Family) are businesses owned by a joint family belonging to Hindu religion. Even though Jain and Sikh families are not governed by Hindu law, they can still form an HUF.

Private Limited Company (Pvt Ltd) may have 2–200 shareholders; shares are held privately and cannot be offered to the public.

Small company – A company other than a public company whose paid-up share capital is not more than ₹50 lakh and turnover does not exceed ₹1 crore.

Public sector undertaking (PSU) – It may be a public limited company listed on stock exchanges with major ownership by a state government or a central government of India or it may be unlisted entity with major ownership by a state government or a central government of India. Some of these entities are formed as business entities through special legislation, where these entities are governed by the statutes of these legislation and may or may not be governed by company laws like a typical business entity.

One-person company – It is a type of private company which can have only one director and member. More Info

HOME