Companies Act

DECRIMINALIZING OUR COMPANY LAW

In line with the government’s stated goal of promoting Ease of Doing Business, the Company Law Committee (CLC), set up by the Ministry of Corporate Affairs (MCA), has recently submitted its report to the MCA, recommending decriminalisation of 46 compoundable offences under the Companies Act, 2013 (the Act). This list is in addition to the 16 compoundable offences already decriminalised by the Companies (Amendment) Act, 2019.

To put things into perspective, attempts to decriminalise business laws is not new to India. This process began with liberalisation of the Indian economy in 1991. The first commercial law that was decriminalised was the Imports and Exports (Control) Act, 1947. It was replaced by the Foreign Trade (Development and Regulation) Act, 1992, which decriminalised most of the offences relating to imports and exports. The most fundamental step in this direction was the replacement of draconian Foreign Exchange Regulation Act (FERA), 1973, by Foreign Exchange Management Act (FEMA), 1999 which decriminalized offences relating to foreign exchange regulations.
Continue Reading Decriminalizing our Company Law – Has the Pendulum Moved Too Far?

New Significant Beneficial Owner (SBO) rules - Companies Act - Implementation Challenges

India is yet to hit its stride in dealing with Significant Beneficial Owner (SBO) rules introduced by the Companies (Amendment) Act, 2017. The SBO rules have its origin in the recommendations made by the Financial Action Task Force (FATF) to its member countries, to make suitable changes in the national legislation to find out individuals, who ultimately own significant beneficial shareholding in the reporting company. There remains a large degree of uncertainty and confusion around the new norms, and their practical impact, as explored below.

Sections 89(10) and 90 of the Companies Act, 2013 (Act) were introduced on the recommendations of the Company Law Committee (CLC) in its Report dated February 1, 2016. The CLC noted that complex structures and chains of corporate vehicles are used to hide the real owners behind the transactions made using those structures.
Continue Reading New SBO Rules – Implementation Challenges

Decriminalising Companies Act Offences

Via the Companies (Amendment) Act, 2019, recommendations of the Committee to Review Offences under the Companies Act, 2013 (Committee) to re-categorise 16 out of 81 compoundable offences under the Companies Act, 2013 (Act) as civil liabilities were accepted. In a move to further relax the provisions, the Government has constituted a Company Law Committee to review aspects of criminalization in the remaining compoundable and non-compoundable offences under the Act.[1]
Continue Reading Decriminalising Companies Act Offences – Striking a Balance Between Ease of Doing Business and Corporate Governance

Companies (Amendment) Act, 2019

Commitment to social causes is best done voluntarily. Accordingly, corporate social responsibility (CSR) was originally introduced in Section 135 of the Companies Act, 2013 (Companies Act), in keeping with global best practices, to provide a framework to encourage companies to meaningfully contribute to communities.

The framework was premised on the principle that companies would contribute the prescribed amount in good faith and the requirement ‘to explain’ any failure to contribute, in their board report, was considered a sufficient disincentive to ensure compliance.[1] 
Continue Reading Corporate Social Responsibility – Less Carrot More Stick

Is Liquidation Irreversible - Schemes of Compromise in Liquidation

The 2005 Report of the Expert Committee on Company Law (JJ Irani Committee Report) had noted that an effective insolvency law:

“should strike a balance between rehabilitation and liquidation. It should provide an opportunity for genuine effort to explore restructuring/ rehabilitation of potentially viable businesses with consensus of stakeholders reasonably arrived at. Where revival / rehabilitation is demonstrated as not being feasible, winding up should be resorted to.

Where circumstances justify, the process should allow for easy conversion of proceedings from one procedure to another. This will provide opportunity to businesses in liquidation to turnaround wherever possible. Similarly, conversion to liquidation might be appropriate even after a rehabilitation plan has been approved if such a plan was procured by fraud or the plan can no longer be implemented”.
Continue Reading Is Liquidation Irreversible? Schemes of Compromise or Arrangement for Companies in Liquidation

Shares with Differential Voting Rights

The Securities Exchange Board of India (SEBI) has recently circulated a consultation paper on Differential Voting Rights (DVRs). Issuance of shares with differential voting or dividend rights is not a novel concept for India. It has been around since 2000 and a few listed companies, like Tata Motors and Pantaloons, have issued shares with differential voting / dividend rights.

However, ever since, SEBI amended the Listing Regulations in 2009, to state that listed companies are not permitted to issue shares with ‘superior rights’, there have hardly been any takers for this instrument. SEBI’s current proposal appears to be an attempt to breathe some life into such instruments by providing more flexibility in structuring the terms of such issuances, albeit with some checks and balances.  
Continue Reading Shares with Differential Voting Rights – SEBI’s Sequel Trumps the Original

Banning of Unregulated Schemes Ordinance, 2019

In the aftermath of the Saradha scam, the Standing Committee of Finance (Committee) in its 21st report dated September 21, 2015 suggested the introduction of a comprehensive regulatory framework governing all entities engaged in activities involving acceptance of deposits from the public. While making this recommendation, the Committee observed that certain entities were engaged in financial as well as non-financial activities and therefore, it was difficult to identify the appropriate regulator for such entities. Such entities fall under the jurisdiction of various regulatory bodies and in spite of overlapping regulations, several such entities were not regulated by any regulator.

In view of the suggestions of the Committee, a high level Inter-Ministerial Group (Group) was formulated for identifying gaps in the existing regulatory framework. The Group suggested the enactment of a comprehensive central act to criminalise the solicitation, promotion, acceptance and/or operation of ‘unregulated deposit schemes’. In line with the recommendations of the Committee and the Group, the Banning of Unregulated Schemes Ordinance, 2019 (Ordinance) was promulgated on February 21, 2019.
Continue Reading The Banning of Unregulated Schemes Ordinance, 2019

Contract Enforcement Laws

The Ease of Doing Business rankings released annually by the World Bank currently ranks India at 163 in Enforcing Contracts.[1] The importance placed by the Modi Government on these, and India’s overall dismal performance has forced the government to take several measures, especially in the field of enforcement of contracts.

The Indian Contract Act, 1872 (Contract Act) and the Specific Relief Act, 1963 (Act) are the two primary legislations governing the enforcement of contracts between parties. While the Contract Act lays down the general principles governing contracts and levy of damages for breach thereof, it also provides for an exception of awarding specific relief in the form of specific performance of contracts.
Continue Reading Contract Enforcement – Ushering In an Era of Performance

Impact of the Companies (Amendment) Ordinance, 2018 on Registration of Charges

On November 2, 2018, the Ministry of Corporate affairs promulgated an ordinance[1] (the Ordinance) inter alia amending certain provisions of the Companies Act, 2013 (the Act). One of the amendments is for the purpose of reducing the extended timelines for filing a charge created by a company as per Section 77(1) of the Act upon payment of additional fees prescribed by the Registrar.
Continue Reading Impact of the Companies (Amendment) Ordinance, 2018 on Registration of Charges

Changes in the Indian Companies Act

Recently, based on the recommendations of the Committee to Review Offences under the Companies Act, 2013 (Committee), the Companies (Amendment) Ordinance, 2018 (Ordinance) was passed on November 2, 2018, to effect certain changes in the Companies Act, 2018 (CA 2013). Around the same time the Ministry of Corporate Affairs (MCA) also issued a notice, seeking comments/suggestions from stakeholders on additional amendments of an “urgent nature” that are required to strengthen the corporate governance and enforcement framework (Notice). This article discusses some of the key amendments proposed in the Notice, which would have far reaching impact if approved in their current form.
Continue Reading Companies Act, 2013: More Changes in the Offing