Companies (Amendment) Act, 2020 – Key Highlights
In view of the constant attempt of the Government to facilitate greater ease of living to law-abiding corporates, The Companies (Amendment) Act, 2020, was published in the Official Gazette of India on 28th September 2020, in accordance with the assent from the respected President of India, Mr. Ram Nath Kovind was passed to decriminalize many offenses and decrease the penal provisions laid down under the Companies Act, 2013, thus paving easier ways for a direct overseas listing of Indian companies.
The main focus of the Companies (Amendment) Act is to:
1. Changes in various offenses. The bill reviews three changes and removes the penalty for certain defaults.
2. Provide relaxation to producer companies in an attempt to increase the ease of doing business in India.
Key Highlights of the Amended Act are as follow:
1. Amendment in the definition of a listed company under Section 2(52)
Under Section 2(52), in the definition of listed companies, the Government has been empowered to exempt certain types of companies, on the basis of the listing of certain stocks on recognized stock markets, as may be given by the regulations, from the description of publicly traded companies in accordance with SEBI.
Thus, for the requirements of the Companies Act, businesses that list only debt securities (NCDs) may be exempt from the concept of a publicly-traded company.
2. Rectification of the name of the company under section 16
Pursuant to section 16(1) of the Act, the Central Government has been authorized to assign a new title to the business, in the situation that the name of the company is similar or too closely parallels the name under which the business in operation had earlier been listed, whether under that same Act or under any prior company law. . The time limit of compliance to change such a name has been reduced from six months to three months.
In case of default in complying with its direction instead of imposing punishment for non-compliance for such default, the Central Government has been empowered to allow a new name to the company. However, it is not forbidden for the company to change the title later.
3. Public Offer and Private Placement under Section 23
Under the provisions of section 23 of the Act, a sub-section 3 has been added which provides that certain classes of public companies will be allowed to list certain class of securities on stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed by the rules and may issue such class of securities.
Further to this, sub-section 4 has also been added wherein the Central Government has been empowered to exempt, by notification, any class or classes of public companies from complying with regard to the provisions of Chapter III (Prospectus and Allocation of Securities), Chapter IV (Share Capital and Duties), Section 89 (Declaration of a beneficial interest in any share), Section 90 (Registration of major beneficial owners in a company) or Section 127 (Punishment of non-distribution of dividends) of the Act.
#4. Further issue of share capital under section 62
Under section 62, the Central Government is empowered to prescribe days lesser than 15, for providing an offer of the right issue to the existing shareholders in contrast to the earlier time period which was 15 days to 30 days and for any such offer for less than 15 days requires the approval of 90% of Shareholders of the company, however, the same has now been abolished with and there is no need to obtain the consent of stakeholders to reduce the time limit from a limit to less than 15 days.
This reduces the timelines for applying for rights issues.
5. Resolutions and agreements to be filed under section 117
The Central Government is empowered to exclude, in the case of a company, any class of NBFCs and any class of HFCs from submitting proposals passed to issue loans or provide assurances or to provide protection with regard to debts.
Earlier, only Banking Companies were exempted.
6. Company to have Board of Directors under Section 149
The prevalent clause of the Act specifies that sitting costs, profit-related commissions, and expenditures accrued for holding the sessions will be charged to the independent directors, but they are not allowed to any equity incentive.
Now, the Amendment Act added a proviso in section 149, which provides a non-executive director including an independent director, to receive remuneration, if a company has no profits or inadequate profits in accordance with Schedule V of the Act.
7. Corporate Social Responsibility under Section 135
Section 135 of the act provides for the constitution of the Corporate Social Responsibility (CSR) Committee for the companies which are covered under the specified limits provided in the section.
The Amended Act provides that a company is not required to constitute a CSR committee if the amount required to be spent by the company under section 135 does not exceed Rupees Fifty Lakh, and the function of such committee will be discharged by the Board of Directors of the Company.
8. Chapter XXIA for Producer Companies (New Chapter)
A new Chapter XXIA has been added in the Act with relation to the Producer Companies from section 378A to Section 378ZU on similar lines as provided in the Companies Act, 1956.
9. Reduction in the amount of monetary Penalties
Penalties pursuant to Section 56 (Transfer and Transmission of Securities), Section 64 (Notice to be sent to the Registrar for the Modification of Share Capital), Section 86 (Registration of Charges for Contravention pursuant to Chapter VI), Section 88 (Register of Members), Section 922 (Registration of Members) (Annual return).
The Companies Amendment Act, 2020 has substantially decreased Section 117 (Resolutions and Agreements to be filed), Section 134 (Financial Statement, Board Report, etc.), Section 137 (Copy of the Financial Statement to be filed with the Registrar), Section 140 (Copy of the Financial Statement to be filed with the Registrar), Section 165 (Number of Directorships), etc.
Decriminalization of offenses which lack an element of fraud or do not have a large public interest has been approved.
10. Omitting punishment with imprisonment in various sections
In order to decriminalize crimes under separate provisions of the Act, incarceration under Section 8 (Formation of charitable enterprises, etc.), Section 266 (Matters to be stated in the prospectus), The Companies Amendment Act, 2020, has been erased from Section 40 (Securities to be dealt with at stock exchanges), Section 68 (Power of the company to buy its own securities), Section 128 (Account books, etc. to be held by the company), Section 167-(Vacation of office of a director), 184 (Disclosure of interest by directors), Section 188 (Related Party transactions), etc.
11. Benches of NCLAT
The Amendment Act seeks to establish new benches of the National Company Law Appellate Tribunal (NCLAT) in order to increase the efficiency of the authorities. These benches shall ordinarily sit in New Delhi or such other place as may deem necessary.
Disclaimer: The Opinions expressed in this article are that of the author(s). The facts and opinions expressed here do not reflect the views of IBC Laws (http://www.ibclaw.in). The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The author(s) and IBC Laws (http://www.ibclaw.in) do not take responsibility of the same. Postings on this blog are for informational purposes only. Nothing herein shall be deemed or construed to constitute legal or investment advice. Discussions on, or arising out of this, blog between contributors and other persons shall not create any attorney-client relationship.
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