New Delhi: A bill to amend the Companies Act to provide for ease of doing business, tighten Corporate Social Responsibility (CSR) compliance, transfer certain responsibilities to the NCLT and re-categorise offences as civil defaults was on Friday passed in Lok Sabha with voice vote despite opposition’s objection that they had received very little time to scrutinise it.
Replying to the debate on The Companies (Amendment) Bill, 2019, Finance Minister Nirmala Sitharaman said the legislation is necessary as the government had promulgated an ordinance on the subject twice – in November 2018 and February 2019.
Sitharaman, who on Thursday introduced the Bill which was strongly opposed by the opposition, said that a bill to replace the first ordinance was passed in the Lok Sabha in January 2019 but could not get through in the Rajya Sabha. “Hence the second ordinance was promulgated in February. This Bill has been brought to replace the second ordinance,” she said.
Rejecting the opposition’s claims, she said the government was not bringing the Bill in haste and that best practice were being adopted to enact the law. Noting a committee was set up in July 2018 and which made a detailed study of penal provisions in the Act and some offences of minor nature were being non-compoundable, she said that the changes were being made to plug gaps and strengthen the corporate compliance system.
Opposing the Bill, Congress’ leader in the house Adhir Ranjan Chowdhury said that government is pushing legislation through Parliament at a fast pace. He said that while he doesn’t have a cogent argument to oppose this legislation, he opposes the way this is being brought about in the House.
Chowdhury also said he wanted to know how the government defines shell companies.
Participating in the debate, DMK’s A. Raja pointed to a World Bank report where India is ranked 77th in starting of a business, enforcing contracts and resolving insolvency among other factors.
Although the amendment is to provide ease of doing business, he asked if the government also has an eye on the means through which it wants to achieve the end. He quoted a Tamil couplet that says the means is more important than the end, he claimed that the bill gives absolute power to the Registrar of Companies and suggests that there must be a body of members who take decisions.
Under the Companies Act, 2013, certain classes of public companies are required to issue shares in dematerialised form only and the amendment bill states this may be prescribed for other classes of unlisted companies as well.
While the Act contains 81 compoundable offences punishable with fine or fine and imprisonment, the amendment bill re-categorizes 16 of these offences as civil defaults, where adjudicating officers (appointed by the Central government) may now levy penalties instead. These offences include issuance of shares at a discount, and failure to file annual returns.
The Bill also amends the penalties for some other offences.
Under the existing Act, if companies, which have to provide for CSR, do not fully spend the funds, they must disclose the reasons for the non-spending in their annual report. As per the Bill, any unspent annual CSR funds must be transferred to one of the funds under Schedule 7 of the Act within six months of the financial year.
The Bill states that a company may not commence business, unless it files a declaration within 180 days of incorporation, confirms that every subscriber to the memorandum of the company has paid for the shares agreed to be taken by him, and files a verification of its registered address with the Registrar of Companies within 30 days of incorporation.
If it fails to comply with these provisions and is found not to be carrying out business, its name of the company may be removed from the Register of Companies. The Act requires companies to register charges on their property within 30 days of creation of charge, extendable upto 300 days with the permission of the Registrar of Companies. The Bill changes the deadline to 60 days.
Under the Act, any change in period of the financial year for a company associated with a foreign company, has to be approved by the National Company Law Tribunal (NCLT). Under the Bill, the power has been transferred to the Central government.