Govt-appointed Panel Pitches for Restructuring Offences Under Companies Law

New Delhi: A government-appointed panel on Monday suggested restructuring of corporate offences under the companies law and an in-house adjudication mechanism to ensure that courts get more time to deal with serious violations.

The 10-member committee, which submitted its report to Corporate Affairs Minister Arun Jaitley, has made various recommendations as part of larger efforts to promote ease of doing business and better compliance levels.

Suggesting strict measures, the panel has pitched for disqualification of directors in case they have directorships beyond permissible limits and capping an independent director's remuneration "in terms of percentage of income".

This is to prevent any material pecuniary relationship which could impair his independence on the board of the company, an official release said about the panel's recommendations.

Among other suggestions is de-registration of companies in case of non-maintenance of registered office.

Chaired by Corporate Affairs Secretary Injeti Srinivas, the committee was set up last month to review the existing framework dealing with offences under the Companies Act, 2013 and related matters and make recommendations to promote better corporate compliance.

Existing rigour of the law should continue for serious offences, covering six categories, whereas for lapses that are essentially technical or procedural in nature, mainly falling under two categories may be shifted to in-house adjudication process, the panel has recommended.

"The committee observed that this would serve the twin purposes promoting of ease of doing business and better corporate compliance.

"It would also reduce the number of prosecutions filed in the special courts, which would, in turn, facilitate speedier disposal of serious offences and bring serious offenders to book," the release said.

The cross-cutting liability under section 447, which deals with corporate fraud, would continue to apply wherever fraud is found, it added.

Apart from restructuring of corporate offences to relieve special courts from adjudicating routine offences, the panel has mooted "re-categorisation of 16 out of the 81 compoundable offences" under the Act.

This would be done by shifting them from the jurisdiction of special courts to an "in-house E-adjudication framework wherein defaults would be subject to levy of penalty by the authorised adjudicating officer (Registrar of Companies)", the release said.

Taking into account their potential misuse, the panel has suggested that the remaining 65 compoundable offences should continue to be under the jurisdiction of special courts.

Other recommendations include status quo has been recommended for all non-compoundable offences relating to serious serious violations, instituting a transparent online platform for E-adjudication and E-publication of orders.

Towards "de-clogging" the work before the National Company Law Tribunal (NCLT), the committee has suggested significant reduction in compounding cases before the tribunal.

The committee has said that the jurisdiction of regional director should be increased with "enhanced pecuniary limits for compounding of offences under section 441 of the Companies Act 2013 (the Act)".

The report also touches upon various aspects of corporate governance, including declaration of commencement of business, maintenance of a registered office, protection of depositors' interests, registration and management of charges, declaration of significant beneficial ownership, and independence of independent directors.

Another recommendation is to vest with the central government the power to approve the alteration in the financial year of a company under section 2(41) and conversion of public companies into private companies under section 14 of the Act.

To deal with the menace of shell companies, the panel has recommended re-introduction of declaration of commencement of business provision.

With respect to corporate governance, the committee has called for greater disclosures regarding public deposits and reduced time limits for filing documents related to creation, modification and satisfaction of charges.

"Once a company obtains restrictions under section 90(7) relating to significant beneficial ownership, in respect of shares whose ownership remains undetermined, such shares should be transferred to the Investor Education and Protection Fund if rightful owner does not claim ownership within a year of such restrictions," the release said.

Well known banker Uday Kotak, former Lok Sabha Secretary General T K Vishwanathan and law firm Shardul Amarchand Mangaldas' Executive Chairman Shardul S Shroff were among the panel members.