Panel for ‘Softer’ Penalty under Company Law

A Govt-appointed high-level panel has recommended amendments to 46 provisions under the company law to reduce or remove criminality & de-clog the criminal justice system, on Monday, the Govt. announced.

The Govt. had set up the Company Law Committee under the chairmanship of Corporate Affairs Secretary Injeti Srinivas to further decriminalise the provisions of the Companies Act, 2013, based on the gravity of the offences & to take other measures to “provide further ease of living for corporates in the country”. The Govt. had earlier, through the Companies (Amendment) Act 2019, decriminalised 16 minor procedural or technical lapses & had categorised them as ‘civil wrongs’.

In a release the Govt. said, “In Chapter I of the report, the Company Law Committee has proposed amendments in 46 penal provisions, so as to either remove criminality, or to restrict the punishment to only fine, or to allow rectification of defaults through alternative methods, which would lead to further de-clogging of the criminal justice system in the country".

Among these are, re-categorising 23 offences out of the 66 remaining compoundable offences under the Act. These 23 offences will now be dealt with in the in-house adjudication framework & subject to only a penalty. Of these 23, there are 2 Category A offences, which pertain to non-compliance of the orders of the Central Govt, National Company Law Tribunal, or Registrar of Companies. For both offences, a fine of ₹20,000 will be levied, up to ₹3 lakh.

There are three Category B offences, which have to do with default in respect of maintenance of certain records in the registered office of the company. Here, the penalty has been recommended to be in the range of ₹50,000 to a maximum of ₹5 lakh.

Three Category C offences, which are defaults on account of non-disclosures of interest of persons to the company, which vitiates the records of the company, have also seen penalties reduced. The other offences for which the committee has recommended reduced penalties include two Category E offences (technical defaults relating to intimation of certain information by filing forms with the Registrar of Companies or in sending of notices to the stakeholders), & 11 Category F offences (defaults involving substantial violations which may affect the going concern nature of the company, or are contrary to the larger public interest).

The quantum of penalties overall recommended by the Company Law Committee is also lower than their current levels.

The Company Law Committee also recommended the omission of 7 compoundable offences, limiting the punishment for 11 compoundable offences to only a fine, & also recommended that 5 offences be dealt with under alternative frameworks.

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