Indian Government to decriminalize two-thirds of offences under Companies Act

The Indian Government is set to abolish prison term in over 40 out of the 66 sections under the Companies Act where compounding is permitted. The compounding methodology helps a company or its executives to avoid prosecution by penalizing them. Moreover, the Ministry of Corporate Affairs (MCA) is also seeking to lower the penalty for small companies.

The Company Law Committee headed by Corporate Affairs Secretary Injeti Srinivas is looking at stringent deterrents for violators, without putting them behind bars. For instance, some restrictions may be imposed on accessing funds or transfer of registered office in case a company violates a provision. The committee also comprises of members like lawyer Shardul Shroff and Kotak Mahindra Bank MD Uday Kotak.

The Centre’s move to decriminalize sections of the Companies Act is likely to benefit 8 lakhs out of the 11 lakh companies having a turnover of Rs. 2 crores and paid-up capital of upto Rs. 50 lakhs.

The government is drawing up plans to introduce a bill to amend the law in the winter session of Parliament, due to start in November. According to sources, the move was in line with Prime Minister Narendra Modi’s call to respect wealth creators and usher in ease of living. The move shall attract prison term for only serious offences as the idea is to make life simpler for companies.

Once Parliament approves the amendments, civil offences will be dealt through MCA’s in-house mechanism led by the registrar of companies, and the courts would be left with a handful to be dealt with. A few months ago, the government had amended the law to reduce the number of provisions that attract jail term from 81 to 66.