The gargantuan changes occurred in the pretext of COVID-19
reiterated the need for harmonization of regimes with commercial
realities of a sinking global economy. With a view to facilitate
the ‘ease of doing business’, a new Companies Amendment
Bill, 2020 (the Bill) was introduced in the Lok Sabha on 17th
March and Company Law Committee (CLC) was constituted with the
objective of decriminalizing some provisions of the Act to reduce
the burden on the judicial bodies and to release companies from the
redundant clutches of criminal law.

THE COMPANIES (AMENDMENT) BILL, 2020

In consonance with the Committee’s recommendations, the
government introduced 72 amendments in the Companies Act,
2013, thereby decriminalising minor, compoundable offences
under the Companies Act in the following ways:

Firstly, the Bill re-categorised 23 compoundable
offences such as failure to maintain company records at the
registered office, non-issuance of statutory notices,
non-compliance of disclosure obligations, etc. do not require any
objective determination or exercise discretion and thus can easily
be determined by the MCA21 system and may be treated as civil
wrongs.

Secondly, the Bill proposes omission of 7 compoundable
offences which can be dealt with through other laws and provisions.
Offences like non-compliance with orders of the National Company
Law Tribunal (NCLT) can be dealt under NCLT’s contempt
jurisdiction, instead of being treated as distinct offences.
Similarly, non-compliance by company liquidators can be dealt with
through the relevant provision of the Insolvency &
Bankruptcy Code, 2016 (the Code).

Thirdly, the Bill proposes to limit 11 compoundable
offences to imposition of fines, and eliminate associated criminal
punishment. This can be done in particular cases where the
compoundable offences do not involve substantial public
interest.

Fourthly, the Bill proposes alternate framework for 5
offences that achieve the desired result as the penal provisions of
original legislation such as non-cooperation by promoters with
company liquidators for which the laws of Insolvency and
Bankruptcy Code of 2016 can be invoked.

IMPACT OF DECRIMINALISATION

Evidently, the massive changes occurred in the context of
COVID-19 are such that new directions more attuned to these
commercial realities need to be explored by law reformers in
developing and amending regimes. In particular, the pandemic has
made traditional notions of corporate responsibility unrealistic
and the government realized this need of urgent change.

At the outset, decriminalisation of corporate law is a preferred
method to promote business and development in the economy.
Promoting business is a multi-staged process which involves
encouraging new organisations to set up, shop in the country,
encouraging foreign investment and consolidating the existing
operations. Naturally, the existence of criminal liabilities in
corporate law is a deterrent to incorporation and inflow of foreign
capital.

Moveover, the amendment seems to promote a compliance culture
where the companies will be able to rectify the defaults and pay
the penalties rather than fighting a criminal charge. Accordingly,
decriminalization of compoundable offences that are technical or
procedural in nature will prove cost-effective and time-efficient
for the companies. In addition to this, when non-compliance of
minor offences does not result into any criminal proceedings than
it instils confidence in both domestic and global players and
boosts foreign investments. There is no denying the fact that
India’s criminal justice system is overburdened, and typically
takes several years to get a final outcome. In principle, any step
taken by the Companies Amendment Act to de-clog the criminal
justice system is a step in that won’t only help the
stakeholders but also the judiciary in general.

Further, certain provisions of amendment justify the above
argument, as can be cited from the provision where offences
relating to non-compliance with the order of NCLT are omitted from
Act, 2013 and will now be dealt by the NCLT only. The said omission
has made contempt jurisdiction of the Tribunal more transparent.
Furthermore, providing an Alternate Framework to offences will
harmonize the provisions with the intended aim of such provisions.
For example, in the matter of winding of a company, promoters,
directors, etc., can be punished for their non-cooperation with the
Liquidator which may not aid the Liquidator in discharging his
duties. Therefore, adopting a mechanism whereby the Company
Liquidator may apply to NCLT for directing Cooperation may solve
the dilemma and give necessary direction.

CRITICISM TO DECRIMINALISATION

On the flipside, the amendments in some provisions for shift of
the offense from criminality to civility do not stand to be perfect
for India Inc. It is important to note that for a country like
India, where the rate of defaults by the companies in complying
with the Companies Act is substantially high, decriminalization
involves greater precautions and stricter civil impositions. The
mere removal of the imprisonment clauses, without increasing the
amount of the penalties will make the law lenient towards the
companies which thereby will result in more failures. For instance,
the present amendment bill like section 8(11), section 26(9),
section 40(5) and others, it is important to note that the
amendment in these sections include removal of the imprisonment
clause, while keeping the limit of penalty same as before. Thus,
with no imprisonment clause and same penalty fine, will emerge a
legal system which is lenient towards the companies, and may
subsequently witness a rise in misconduct by companies in light of
such leniency with no fear of criminal prosecution.

Moreover, the amendments in section 59(5), section 66(11),
section 71(11), section 242(8), section 302(4) state the punishment
for the companies in case of not abiding by the orders of the
Tribunal. Removal of the whole of the punishment clause under these
sections goes against public interest at large and thus,
non-compliance of Tribunal orders is equivalent to the non-
compliance of the law.

CONCLUSION

The Companies Act is just like the Constitution for the
corporate world. The sector follows the legislation in letter and
spirit for solving all the disputes. A blanket decriminalisation of
the legislation should not be brought about as it results in
leniency and flouting of laws by companies. While decriminalisation
of the Companies Act is essential, a more calibrated approach must
be employed to ensure that the existing legislation is not rendered
toothless.

It is imperative that an optimum balance be maintained between
the goals of promoting greater ease of doing business and
strengthening the corporate governance framework under the
Companies Act, 2013. The proposed amendments should be made in a
manner so as to give relief to the stakeholders on one hand while
retaining the deterrent effect towards the wilful and intentional
violations of the law involving matters of public interest and
large amount of public money. Thus, decriminalization strategies
aimed at achieving both deterrence and an improved ethical climate
upon the part of corporate actors need to come to grips with these
changes in the nature of corporate life itself if these remedies
are to be perceived as being credible and effective.

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