COMPANIES AMENDMENT ACT, 2020. (An overview)

Author: Ritika Ghosh


We are altogether acquainted with the scandalous investor's debate of Bakshi and McDonald, Tata, and Mistry. While such episodes of debates are normal, it is fundamental for us to comprehend with regards to what might prompt such questions.

In the encouragement of the goal of the public authority to speed up more noteworthy simplicity of living and working together for those organizations that maintain the law, it set up the Company Law Committee (CLC) in September 2019 to investigate the decriminalization of different offenses under the Companies Act, ("2013 Act") regarding the gravity of every offense. Considering the suggestions of the CLC, the public authority has looked to revise different arrangements through the Companies (Amendment) Act[1], 2020 ("Act") in an undertaking to patch up the current laws.

With this foundation, this article looks to think upon the key changes accommodated in the Act and its extensive results. Further, it investigates whether the Act is a positive development.


Quite possibly the main change achieved by the Act is the decriminalization of offenses under the Companies Act, 2013. Expressed as one of the essential objects of the Companies (Amendment) Bill, 2020 which showed into this Act, this was executed remembering the CLC report[2], November 2019. The offenses are decriminalized dependent on the gravity of every offense, and on the reason that these offenses, neither influence public interest inconveniently nor contain any component of misrepresentation in its bonus.

Remembering the general pendency of cases in courts and trying to lighten the weight of such courts, the Act tries to uphold a guideline-based methodology in eliminating the burden of reformatory outcomes in the event of the moment and specialized defaults. Further, the exacting of such money related punishments would now be able to be arbitrated by In-house Adjudication Mechanisms (IAM) as given under §454 of the Companies Act, 2013, without moving toward criminal courts.

The progressions have been achieved either by simply striking down pieces of arrangements which involve correctional results to give up just the common and financial disciplines whether with or without changes, (as found in §86. Cl. 1, §89. Cl. 5, §90. Cl. 1 and so on) or by totally excluding offenses including the scorn of the Tribunals' requests. (under §48. Cl.5, §59. Cl.5, §66. Cl.11and so forth)

Further, while certain offenses explicitly identifying with Corporate Social Responsibility[3] and related gathering transactions[4] have been decriminalized, the financial fine and punishments have been expanded, remembering the gravity and nature of these offenses.

Decriminalization of offenses is a quintessential move to inspire the certainty of individuals in running the organization without the dread of being continually indicted for unimportant offenses. While there is a danger of crediting less due steadiness because of the nonappearance of criminal risk, this move is basic for the assurance of organizations. The changes are vital in finding some kind of harmony between the insurance of the individual interests of the organizations and the public interest on the loose.[5]


The In-House Adjudication Mechanism under §454[6] of the Act (the "IAM Framework") is one of the key corrections acquainted by CAA 2019, with adjusting how certain compoundable offenses under the Act are managed. The IAM Framework subbed the cycle of allure and settling under the steady gaze of the National Company Law Tribunal ("NCLT") with an online stage controlled by the MCA corresponding to certain recognized offenses.

The whole cycle is led through an online gateway and requires actual participation just in outstanding conditions. The IAM Framework is accessible for offenses that draw in a punishment of up to INR 2.5 Million (for any offense with the punishment more noteworthy than such cut-off, the applicable gathering keeps on being the NCLT). These offenses incorporate, entomb Alia, giving offers at a discount[7], tolerating directorship past a predefined limit[8], and specialized defaults/non-compliances identifying with structure filings with the RoC[9] or sending a notification to investors (or issuance of intermediary) as per the Act.[10]


1. Brief legislative background of CAB 2020

a) CAB 2020 has its beginning in the suggestions made by a council headed by Mr. Injeti Srinivas (Secretary, MCA) under the Company Law Committee Report distributed on November 18, 2019. (the "Law Committee Report"). Regarding decriminalization of the Act, the Law Committee Report's command was restricted to compoundable offenses and avoided offenses identified with genuine extortion, public interest, and non-compoundable offenses[11]. Thus CAB 2020 spotlights on recommending an altered structure regarding the punishments connected to such compoundable offenses under the Act.

b) The reason for decriminalization and ensuing corrections were proposed under CAB 2020.

c) The standard hidden the corrections proposed by CAB 2020 is a trial of target assurance versus abstract appraisal. As such, in instances of common wrongs, i.e., an offense emerging from procedural mistakes or specialized breaches, the assurance of default is unbiased, is without any component of extortion or strife with the public interest, and hence doesn't justify delayed mediation. The Law Committee Report noticed that in the event of common wrongs, the unfair activity is dispossessed of any goal to cause hurt, i.e., men's rea, which is the prevalent component in criminal activity. Based on the previous standard, CAB 2020 has suggested that offenses that identify with infringement of an all-around articulated legitimate rule that can be surveyed by an at first sight target assessment be recategorized as common offenses (instead of being criminal activities) under the Act and default thereof be amended by instalment of a recommended punishment.

d) The corrections proposed by CAB 2020 to the Act regarding the decriminalization of compoundable offenses can be put into 3 (three) general classifications: (a) deletion of a charging provision imposing the criminal penalty; (b) removal of punishment of imprisonment prescribed for an offense and its recategorization as a civil wrong punishable only with a fine; and (c) rationalization of the number of fines currently prescribed under the Act.


Without a doubt, the progressions proposed by CAB 2020 have the capability of giving huge haul benefits to partners and speculators by encouraging simplicity of working together and providing a swifter redressal and authorization component for corporate non-compliances in India. What's more, decriminalization of offenses under the Act is probably going to yield immaterial advantages in type of assurance of generosity of an organization that could some way or another get discoloured by criminal authorizations being forced for minor, specialized or coincidental failures. As the Law Committee Report appropriately noticed, while criminal authorizations are more horrifying and lasting in nature, the expense of common punishments perhaps retained as a feature of maintaining a business in the conventional course.

In any case, the officials ought not to dismiss the way that decriminalization of specific offenses under the Act could transform it into an innocuous tiger which may neglect to look for satisfactory, and fundamental consistency by the organizations even according to issues of grave significance.

Another worry which merits pondering upon is if the decriminalization proposed by CAB 2020 will have the impact of empowering and unbridled corporate culture of cleansing defaults by simply using reserves, consequently crushing the administrative goal with which CAB 2020 was presented.

Simultaneously, decriminalization of offenses and defence of their financial obligation could likewise bring about officials in-control to, from this time forward, take a self-satisfied view and a less watchful methodology in keeping up compliances of the organization.

The brief timeframe period which has slipped by between authorization of CAA 2019 and presentation of CAB 2020 appears to be deficient for the impacts (either planned or accidental) of administrative changes to corporate laws to permeate down the line to the expected recipients i.e., the corporate substances. While it would require some investment for organizations to receive the rewards of the revisions identifying with decriminalization of offenses and recategorization of punishments proposed under CAB 2020, the equilibrium which is basic to accomplish the general goals of the Act itself, should not be lost.


[1]Companies Amendment Act of 2020, http://www.mca.gov.in/Ministry/pdf/AmendmentAct_29092020.pdf. [2]The Companies Law Committee Report of 2020, http://www.mca.gov.in/Ministry/pdf/CLCReport_18112019.pdf [3]Section 188. Cl.5(i) of the Companies Act, 2013. [4] Section 425 of Companies Act, 2013 [5]Ananya Raghavendra and Eshvar Girish° Companies (Amendment) Act, 2020: A step in the right direction? Published on November 16, 2020 https://www.scconline.com/blog/post/2020/11/16/companies-amendment-act-2020-a-step-in-the-right-direction/#_ftn3 [6] Section 454 of Companies Act, 2013 – Adjudication of Penalties. [7] Section53. Cl. 3 of Companies Act, 2013- Where any company fails to comly with the provisions of this section, such company and every officer who is in default shall be liable to penalty which may extend to an amount equal to an amount raised through the received with interest at the rate of twelve per cent. Per annum from the date of issue of such shares to the persons to whom shares have been issued [8] Section165. Cl.6 of Companies Act, 2013 [9] Section 86. Cl. 1 of the Act (Contravention of the provision of dealing with duty to register charges, to report their satisfaction within prescribed timelines and the duty to maintain register of charges), §89. Cl. 7 of the Act (Filing of returns with the RoC within the prescribed time after receiving a declaration of acquisition of beneficial interest in shares from a person). [10] Section 105. Cl.5 of the Companies Act, 2013. [11]Compoundable offences are those offences where the prescribed punishment is only fine, or imprisonment or fine, or both. The Act allows for compounding of all offences to which monetary penalty is attached.

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