Panel suggests changes in Companies Act

A government-constituted committee on Monday submitted its recommendations on restructuring the existing framework that deals with corporate offenses for improved ease-of-doing-business and corporate governance.

The report submitted to Union Finance and Corporate Affairs Minister Arun Jaitley, also suggested that some compoundable offenses be decriminalized by shifting them to an in-house adjudication process to give courts more time for serious offenses.

For better corporate compliance, the panel, chaired by Corporate Affairs Secretary Injeti Srinivas, suggested strict rules like re-introducing the provision for declaration of commencement of business to improve tackling the menace of shell companies.

"Non-maintenance of registered office to trigger de-registration process" and "Holding of directorships beyond permissible limits to trigger disqualification of such directors" are some of the recommendations to improve corporate governance.

The committee suggested a huge reduction in the time limit for filing documents related to creation, modification, and satisfaction of charges and stringent penal provisions for non-reporting, an official statement said.

"Imposition of a cap on independent director's remuneration in terms of percentage of income in order to prevent any material pecuniary relationship, which could impair his independence on the board of the company" is another suggestion made by the panel.

The committee did a detailed analysis of all penal provisions under the Companies Act, 2013 and broke them down into eight categories, of which six categories cover serious violations. For these six, it said the existing rigor of the law should continue.

"... whereas for lapses that are essentially technical or procedural in nature, mainly falling under two categories, may be shifted to in-house adjudication process," the panel suggested.

The panel recommended re-categorization of 16 of the 81 compoundable offenses by shifting them to an in-house e-adjudication framework wherein the adjudicating officer at the Registrar of Companies would levy a penalty on defaults.

Status quo has been suggested for the remaining 65 compoundable offenses for their potential misuse and all non-compoundable offenses that relate to serious offenses.

"... this will serve the twin purposes of promoting ease-of-doing-business and better corporate compliance. It will also reduce the number of prosecutions filed in the special courts, which will, in turn, facilitate speedier disposal of serious offenses and bring serious offenders to book," it added.

The report made recommendations for de-clogging the National Company Law Tribunal through a significant reduction in compounding cases before it.

For this, it suggested enlarging the jurisdiction of the Regional Director with enhanced pecuniary limits for compounding of offenses under Section 441 of the Act. Further, it also suggested empowering the central government to approve the conversion of public companies into private companies under Section 14 of the Act.

Currently, the case concerning the conversion of Tata Sons from a public limited company to a private limited company is being heard by the National Company Law Appellate Tribunal.

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