Entrepreneurs Won’t Be Jailed For Corporate Offenses! Companies Act Will Be Changed To Decriminalize Offenses

The Centre proposes to amend Companies Act, in order to decriminalise a number of offences and ease corporate social responsibility (CSR) requirements, especially for smaller companies.

Revamping Companies Act, 2013

The government on Wednesday cleared a raft of measures aimed at improving ease of doing business, including a moderate penalty regime for all offences barring grave ones, allowing companies to list overseas and the freedom to offer independent directors higher remuneration.

The revamp of the Companies Act, 2013, on being cleared by the Union cabinet seeks to make compliance less rigorous for companies and attract foreign investments at a time the economy is going through a slowdown.

The amendment bill will also enable the listing of Indian companies on stock exchanges in foreign jurisdictions. This is expected to give Indian firms greater access to capital, a broader investor base and better valuations.

The Centre proposes to recategorise 23 offences so that they can be dealt with through an in-house adjudication framework, while five types of offences will be dealt with under different alternative frameworks, while another seven will be omitted altogether. 

For 11 kinds of offences, the provision of imprisonment will be removed, limiting punishment to fines only. Six offences that had already been decriminalised earlier will see a further reduction in the quantum of penalties.

The proposed amendments will also ensure that companies which have an obligation to spend ?50 lakh per annum or less on CSR. Companies that spend more than the mandatory 2% on CSR in a particular year can carry it forward as credit for fulfilment of CSR obligations for the next few years as well, as denoted by the Finance Minsiter.

More Details

The cabinet cleared 72 amendments of the Companies Act, 2013. The amendments seek to usher in a new regulatory architecture by moderating penalties for 52 of the 136 penal provisions. The cabinet also decided to expand the scope of lower penalties for small companies and one-person companies to cover all defaults as well as for startups and producer companies.

The proposals also include allowing companies with inadequate profits to offer remuneration to independent directors the way executive directors are rewarded.

As of now, managerial remuneration is capped at 11% of net profit and if a company needs to spend more, it needs shareholders’ approval. The same rules will now apply for the remuneration of independent directors once the changes become law, allowing firms to spend more to retain talent.