Companies Amendment Bill 2020

The new Companies Amendment Bill 2020 was introduced in Lok Sabha on 17th March 2020 by the Minister of Corporate Affairs, Ms. Nirmala Sitharaman. The proposed amendments were recommended by the Company Law Committee and submitted to Ministry of Corporate Affairs on 14th November 2019. The recommendations were made for the main purposes which are given below:

1. Decriminalization of certain offences

2. Exclusion of certain companies from 'Listed Companies'

3. Amendment of provisions related to Corporate Social Responsibility

4. Provide relaxations to ease the living of corporates

Below is the basic overview of certain amendments proposed in the bill:

1. Decriminalization of offences: The process of decriminalization of certain offences was already mentioned in the Companies Amendment Act 2019 by converting 16 non-compoundable criminal offences into civil wrongs with only monetary penalty. In this bill, efforts have been made to decriminalize those offences  which do not have elements of fraud or which does not involve public interest.

2. Exclusion of certain companies from 'Listed Companies': Private Placement under Companies Act 2013 (the "Act") along with SEBI (Issue and Listing of Debt Securities) Regulations 2008 stated that not only public companies but certain private companies were permitted to list their debt securities on a stock exchange. The definition of listed companies included private companies whose debt securities were listed due to which there were strict regulations regarding rotation of auditors, annual returns, maintenance of records etc. which made compliance troublesome. This was discouraging for the private companies from seeking listing of debt securities.

To avoid these problems, a provision was has been introduced in this bill wherein the Central Government after consultation with SEBI would exclude certain companies from the class of 'Listed Companies'. The details of such companies would be mentioned in the rules after detailed discussions with SEBI, MCA and other stakeholders. 

3. Corporate Social Responsibility: Under the Act, companies with net worth, turnover or profits above a particular amount had to set up CSR committee and spend 2% of their average net profits of the last three financial years towards CSR policy. As per the Bill, if the amount to be spent does not exceed Rs. 50,00,000/- then the company does not have to set up CSR committees. Further, if a company spends excess amount than the amount usually spent on CSR policy then the company can set off the excess amount in succeeding financial years.

4. Filing periodic results for unlisted companies: The Bill provides for filing of periodic financial results, completing audit or review of periodical financial results for unlisted companies.

5. Rights Issue: The provision for rights issue was applicable to shareholders who bought share capital proportionate to their current holding for a certain period of time. Minimum 15 days and maximum 30 days' time was given for the shareholders to accept the offer. The Bill strives to reduce the 15 days' time but the actual reduction would come into effect through the rules which would be prescribed later.

6. Foreign Listing: The Bill provides for allowing Central Government to set out rules for certain public companies to list securities on stock exchange in permissible foreign countries.

7. Under the Act, one person companies and small companies had to pay 50% of the penalty of certain offences. The Bill has however:

a. Extended this provision to producer companies and start-up companies.                              

b. Limited the penalty to Rs. 2,00,000 for the company and Rs. 1,00,000 for the defaulting officer.       

c. Extended this provision to apply to violation of any provision of the Act.

8. Producer Companies: This Bill introduces Chapter XXIA which is relevant to Producer Companies. The provisions are related to formation, membership, voting rights & benefits to members, memorandum etc.