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The Company Establishment Act: A Brief Review

Since the Corona outbreak, the government of India has often adopted a proactive approach by initiating various relief measures. The introduction of Companies (Amendment) Bill, 2020 in the Lok Sabha on 17.03.2020 by the MCA (Ministry of Corporate Affairs), seeks amendments to the Companies Act 2013 and it's a measure taken up by the central government to facilitate ease of doing business for companies operating in India. This article gives an overview of the Company Amendment bill, 2020. It gives an insight detailed view that the bill is subjected to rationalize the punishments prescribed under the Act and to decriminalize the compoundable offences under the Companies Act, 2013(the Act).

Introduction
The Corona Virus disease (COVID-19) outbreak has changed the pattern in every sector like Companies. The companies are facing huge difficulties to fulfil their requirements under the Companies Act, 2013 (the Act). As the rules and provisions of the Companies Act, 2013(the Act), mandates the companies to file requisite documents, which includes annual returns and financial statements, with the concerned Registrar of Companies (RoC) of their jurisdiction.[1]

To overcome and to ease their working, the government of India is trying to bring in various relief schemes. The main intent is to resolve the consequences which the non- complaint companies are facing at large. Recently, the government i.e. the MCA has introduced the Companies Fresh Start Scheme, 2020[2] (CFSS), or the Companies (Amendment) Bill 2020. This scheme is intended at helping the companies to make fresh and new start-ups as a complaint entity, moreover it aids at avoiding the consequences of non- compliance as well.

Background:
On 12th September 2013 the Companies Act, 2013 (the Act) came into force across India. It consists of a few amendments to the previous act of 1956. The provisions and rules framed thereunder instruct companies to file requisite (or necessary) documents including annual returns, financial statements with the concerned ROC[3] of their jurisdiction. And when a company contravenes the provisions present therein by doing something which is prohibited under Act, such act is considered to be an offence under the Act, these offences can be treated as Compoundable[4] & Non-Compoundable one.

The path to success is to take massive, determined action.- Tony Robbins

To remove such issues or to resolve, reduce and provide relief to the non-compliant companies during the outbreak of the COVID-19 pandemic, the Ministry of Corporate Affairs (MCA) i.e. the government of India on 17th March 2020 has introduced to decriminalize these offences.

If we look through the past decades, we will find that this is not the first time that this scheme is being introduced. The MCA has introduced similar released schemes previously as well.

Those are as follows:
  • Company Law Settlement Scheme, 2010 and Easy Exit Scheme, 2010.
  • Company Law Settlement Scheme, 2011 (CLSS-2011) and Easy Exit Scheme, 2011 (EES-2011).
  • Company Law Settlement Scheme, 2014 (CLSS-2014).
  • Condonation of delay scheme, 2018 (CDS-2018).[5]


Amendment Bill, 2020

The introduction of companies (Amendment) Bill 2020, by the government into Lok Sabha aims at decriminalizing some offences which have been led by the Secretary of MCA, Mr. Injeti Srinivas.

The proposed bill aims at the following objectives:
  • Reclassifying 23 Compounded offences.
  • The omission of the 7 compounded offences.
  • Restricting 11 compoundable offences to an only fine.
  • Alternate framework for 5 offences.
On a press conference held on 17th May 2020, the ministry of finance has announced the last position of the Corona outbreak package towards building ATAMNIRBHAR BHARAT which states that the amendment would include the decriminalization of various offences or such various defaults which are compoundable in nature which even involves minor and technical defaults like:
  • The shortcoming in CSR reporting,
  • inadequacies inboard report,
  • filing defaults,
  • Delay in holding AGM and so on.
Additionally, the Finance Ministry even mentioned that the amendments de-clog Criminal courts and the Hon'ble National Company Law Tribunal (NCLT).[6]

Benefits
During this pandemic the Company Amendment Bill, 2020 is a beneficial scheme as it provides an opportunity to the defaulting companies i.e. to the Non- complaint companies; and it also provides rest to inactive companies, to have an option to be dormant or else to erase out themselves from the registers.

Plus, point to it is such as there are no additional fees to get benefitted of the scheme, it makes all defaulting and inactive companies opt for. But still, if they fail in doing so and continues under defaults, then, ROCs has the right to take over or may take over such companies having under their jurisdiction.

Not even that, it will also reduce the burdens of compounding cases. Hence, it will provide reliefs to NCLTs and NCLATs also cases. [7]Overall, this scenario will then aid in achieving the objective of de-clogging the tribunals and other courts that means now there will be cases with a more focused serious nature.

Conclusion
The idea of decriminalization of compoundable offences taken by the government is a well – thought process to provide reliefs to the companies/ stakeholders / the investors. The finance Minister Nirmala Sitharaman, proposal of amendments was adjourned due to this pandemic. It was even said that the real object of decriminalizing certain offences does not benefit the public interest at large. The decision is still unconcluded as the courts are closed due to the corona outbreak which means the status of the bill is even unconcluded. We can say that the government has used this pandemic phase to make changes in the Companies act by showing the importance to introduce such an ordinance.

A goal is a dream with a deadline.– Napoleon Hill

However, it's not an easy step but it i.e. the bill will be a good thought process as the scheme has been a pipeline since the 2018 year.

End-Notes:
  1. Gyanendra Kumar, Shikha Tandon & Robin Grover, ‘A Fresh Start for Companies'(Cyril Amarchand Mangaldas Blog, 17 June 2020) accessed 9 July 2020
  2. Ministry of Corporate Affairs, Government of India – General Circular No. 12/2020, F. No. 02/01/2020-CL-V. See: https://www.mca.gov.in/Ministry/pdf/Circular12_30032020.pdf
  3. The Registrar of Companies
  4. Companies (Amendment) Act 2018, s 441(1)
  5. Gyanendra Kumar, Shikha Tandon & Robin Grover, ‘A Fresh Start for Companies'(Cyril Amarchand Mangaldas Blog, 17 June 2020) accessed 9 July 2020
  6. AMLEGALS , ‘Decriminalisation Of Compoundable Offences'(Mondaq , 8 July 2020) accessed 9 July 2020
  7. Shubhangi Pathak, Saurajay Nanda and Ribhu Garg, ‘The Companies (Amendment) Bill 2020 – A Welcome Change to Business and Commerce?'(Mondaq , 5 May 2020)< https://www.mondaq.com/india/corporate-and-company-law/928620/the-companies-amendment-bill-2020-a-welcome-change-to-business-and-commerce> accessed 9 July 2020
Written By: Riya Gupta

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