Govt approves 72 changes to companies law; permits direct foreign listing of Indian company

Briefing reporters, Corporate Affairs Minister Nirmala Sitharaman said the priority is to "decriminalise" provisions in the Act.

5th Mar 2020
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Aiming further improvement in ease of doing business, the Cabinet on Wednesday approved 72 changes to the companies law with a focus on decriminalisation of various provisions and permitting direct overseas listing of Indian corporates.


Reduction in penalties for certain offences as well as in timeline for rights issues, relaxation in CSR compliance requirements and creation of separate benches at the National Company Law Appellate Tribunal (NCLAT) are among the raft of other proposed changes in the Companies Act, 2013.


Briefing reporters, Corporate Affairs Minister Nirmala Sitharaman said the priority is to "decriminalise" provisions in the Act.


Finance Minister Nirmala

Union Finance Minister Nirmala Sitharaman




There would be 72 changes resulting in amendments to 65 sections of the Act and the aim is to ensure greater ease of doing business as well as living.


Sitharaman, who is also the finance minister, said 23 offences would be recategorised out of 66 compoundable offences under the Act. Besides, seven compoundable offences would be omitted, she said.


She also said penalties would be reduced in case of various compoundable offences.


Generally, compoundable offences are those which can be settled by paying a certain amount of money.


According to the corporate affairs ministry, there are 52 proposals that would result in 48 amendments for greater ease of doing business for law abiding corporates by way of "removing criminality totally in respect of 35 procedural and technical defaults".


Besides, imprisonment would be removed from 11 penal provisions and quantum of penalties in respect of six defaults which had been decriminalised earlier in 2019 would be reduced.


With respect to greater ease of living, there are 20 proposals that would result in 17 amendments to the Act.


"The amendments are expected to significantly enhance the confidence of Indian corporates on the government's resolve to provide greater ease and accord highest respect to honest wealth creators in the country and reduce the burden on the justice system," the ministry said.


These proposals also come at a time when economic growth has turned sluggish and global uncertainties are on the rise.





Amendment would be carried in Section 23 of the Act for including an enabling provision to allow direct listing of securities by Indian public companies in permissible foreign jurisdictions. This would provide an alternative source of capital for domestic companies and also broaden their investor base.


Regarding CSR, the government has proposed permitting eligible companies to claim credit for CSR spend in excess of the two percent obligation in a particular year against its obligation for the subsequent financial years.


Further, companies with CSR obligation to spend Rs 50 lakh or less will not be required to constitute a committee in this regard.


Under the Act, certain class of profitable companies are required to shell out at least two percent of their three-year annual average net profit towards CSR (Corporate Social Responsibility) activities.


Other changes include those pertaining to providing adequate remuneration to non-executive directors in case of company having inadequate profit and relaxation in certain compliance requirements for corporates operating in IFSC Gift City, Gujarat.


Incentivising compliance in filing annual returns and financial statements, enabling power to require large unlisted companies to submit periodic financial returns so that periodic economic data is made more scientific and creating separate benches at NCLAT have also been proposed.


The NCLAT benches would deal with cases under the companies law, the Insolvency and Bankruptcy Code (IBC) and the Competition Act.


Among others, companies would be able to file prosecution against their employees at the place of location of property. Another amendment is to ensure that imprisonment shall not be ordered by a court on an officer/employee of the company for wrongful possession of dwelling unit, if the company has not paid certain dues to that officer/employee.


The changes, approved by the Cabinet, are mostly in tune with the proposals made by a government-appointed high level panel in November 2019.


Industry grouping CII said the proposed amendments would unclog the criminal justice system and establish the trust factor in business and industry that is essential for a healthy ecosystem.


Assocham said the Cabinet's decisions to decriminalise several civil offences under the companies law is a big way forward towards ease of doing business. The move towards in-house resolution would cut litigation and boost investor confidence, the industry body said.



(Edited by Saheli Sen Gupta)

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