What Is the Companies Amendment Act, 2019 About?
The Companies Amendment Act, 2019 is a significant change in legislation of the Companies Act, 2013. It was passed to amend some provisions in the current law in an attempt to enhance the corporate governance, curtail unnecessary criminal penalties, and enhance the mechanisms of compliance.
The main concerns of this amendment are:
● Lessening the criminalisation of procedural minor lapses.
● Implementation of internal adjudication systems.
● Improving company and officer accountability.
● An easier doing business environment in India.
The Act gives the Central Government powers to administer various defaults without necessarily using a court or a tribunal.
What is the Reason behind the Introduction of Why Was the Companies Amendment Act, 2019?
The amendment of 2019 was enacted to amend the Companies Act, 2013 that had realistic challenges to the companies.
The key reasons include:
● Technical and procedural default over-criminalisation.
● Overwork of NCLT and special courts.
● Slowness in correcting non-compliance incidents of little importance.
● Should foster investor confidence and facilitation of business.
The government planned to switch to the compliance based approach rather than punitive one particularly where non-serious violations are involved.
Who Does the Companies Amendment Act, 2019 Apply To?
The Companies Amendment Act, 2019 concerns:
● All businesses established by the Companies Act, 2013.
● Directors and Key Managerial Personnel (KMPs).
● Secretaries, auditors and compliance officers of the company.
● Shareholders and investors
● Control officials and adjudicating officers.
The amended provisions apply to both the private and the public companies such as the listed companies.
What Are the Key Provisions?
The 2019 amendment introduced some of the most significant changes that include:
● Decriminalization of Offences.
● A number of crimes are not prosecuted but impose civil penalties.
● In-House Adjudication Mechanism (IAM)
Some of the defaults are now manageable by adjudicating the officers appointed by the government.
● Reduced Penalties
Money fines are justified and limited particularly to small businesses and start ups.
● Power to Rectify Defaults
Companies are given an opportunity to remedy some of the violations before they are punished.
● Enhanced Corporate Governance.
The tougher measures on fraud, misstatements and recurring defaults continue to exist.
How Does It Work in Practice?
In real world business operation:
● Minor non-compliance is no longer an offense, which will result in criminal prosecution.
● Show-cause notices are made by adjudicating officers.
● The companies have a chance to clarify or correct defaults.
● Disciplinary actions are meted out without necessarily going to NCLT.
● Challenges to penalties are in favour of the Regional Director rather than NCLT.
● This helps a great deal in minimizing litigation and accelerating compliance.
What Does this have to do with Companies or Individuals?
The amendment directly and positively affects business and professionals:
● Less legal risk of directors normal default.
● Less compliance cost and quicker resolving.
● Fewer cases were taken to NCLT/NCLAT so that attention could be paid to serious cases.
● Business motivation towards startups and small businesses.
● Better corporate compliance culture.
Fraud, violations of the public interest, and repeated default are, however, severe crimes that are still strongly punished.
Example
A company which is privately owned does not submit its annual return on time because of a clerical mistake.
Before 2019
● Director’s criminal prosecution.
● Criminal action before a court or tribunal.
After 2019
● Notice of show-cause given by the adjudicating officer.
● Monetary penalty imposed
● None of the criminal cases or trials.
● This will save time, money and image.
The relevance of this Act / Rule in the NCLT / NCLAT cases.
The Companies Amendment Act, 2019 is quite applicable to NCLT and NCLAT due to the following reasons:
● It will minimize the number of small cases that flow into tribunals.
● NCLT is able to concentrate on issues of insolvency, oppression, mismanagement and restructuring.
● Elucidates the jurisdiction between tribunals and administrative jurisdiction.
● Enhances expedited corporate dispute resolution.
● Makes tribunal operations international best practices.
A significant number of cases involving compliance are no longer in the tribunal.
Frequently Asked Questions (FAQ)
Q1. Does the company’s amendment act 2019 apply to old cases?
No, it tends to have a prospective application, although some of the current cases might be served well should offences be decriminalised.
Q2. Is this Act eliminating any criminal penalty?
No. Grave crimes like fraud, violation of public interest and recidivism are criminal.
Q3. Who puts adjudging officers into position?
Under the Act, adjudicating officers are appointed by the Central Government.
Q4. Are penalties imposed appealable?
Yes, one can make appeals in front of the Regional Director.
Q5. Does this amendment decrease compliance liability?
No. The obedience is still obligatory, but the enforcement has only been altered.
Summary
The Companies Amendment Act, 2019 is a significant change in the Indian corporate law, whereby punishment has been substituted with compliance. The Act will enhance the ease of doing business whilst ensuring accountability by decriminalising minor defaults, enhancing in-house adjudication and minimizing unnecessary litigation. It is also important in simplifying corporate governance and easing the task of NCLT and NCLAT to make the Indian corporate legal system more efficient and practical.
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