India is a growing economy where development is attributable to number of factors such as availability of land, labour, raw materials, cost effective incentivizing schemes promoting commercial development in the country. With a view to carry out business operations, the entrepreneurs may opt for any of the available corporate vehicles such as proprietorship, partnership, limited liability partnership, etc. One of such medium to transact business is via setting up of a company.
The Government enforced the Companies Act, 2013 (hereinafter referred to as the "Act") in order to monitor the affairs of the companies in India. The Act states the provisions regarding incorporation, obligations, liabilities, management of a company thereby ascertaining proper regulation thereof.
The Government promulgated the Companies Amendment (Ordinance), 2018 (hereinafter referred to as the "Ordinance") on November 2, 2018 after receiving the assent from the President of India.1 The said ordinance has been brought into effect with the twin objectives of promotion of ease of doing business within the country along with better corporate compliance. Some of the aspects aimed at being covered under the said ordinance are;
- Reduction of burden: Shifting of jurisdiction of 16 types of corporate offences from the special courts to in-house adjudication, which is expected to reduce the case load of Special Courts by over 60%, thereby enabling them to concentrate on serious corporate offences.
- Easing penal provisions: The penalty for small companies and one-person companies has been reduced to half of that applicable to normal companies.
- E-adjudication: Instituting a transparent and technology driven in-house adjudication mechanism on an online platform and publication of the orders on the website.
- Strong regulation: Strengthening in-house adjudication mechanism by necessitating a concomitant order for making good the default at the time of levying penalty, to achieve the ultimate aim of achieving better compliance.
- Unclogging of NCLT: To administer the
legal affairs in respect to a company, the Government has provided
the National Company Law Tribunal (also referred to as the
"NCLT") established for resolution of civil as well as
criminal disputes thereto. Minimizing the burden on NCLT shall aid
its focus on serious corporate offenses. Some of the measures taken
to de-clog NCLT are:
- enlarging the pecuniary jurisdiction of Regional Director by enhancing the limit up to INR 25,00,000 as against earlier limit of INR 5,00,000 under Section 441 of the Act;
- vesting in the Central Government the power to approve the alteration in the financial year of a company under section 2(41); and
- vesting the Central Government, the power to approve cases of conversion of public companies into private companies.
- Curbing Shell companies: Shell companies are the non-trading entities incorporated under the multiple layers of subsidiary companies which be used as device to effectuate illegal transactions such as tax evasion, money laundering etc. Declaration of commencement of business provision has been re-introduced to better tackle the menace of shell companies.
- Better Corporate Management: Recommendations related to corporate compliance and corporate governance include greater disclosures with respect to public deposits; greater accountability to filing documents related to creation, modification and satisfaction of charges; non-maintenance of registered office to trigger de-registration process; and holding of directorships, beyond permissible limits to trigger disqualification of such directors.
Fostering better compliance for effective management of the company's affairs, the Government has promulgated the ordinance of modifications in the prevalent company law provisions.
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