The report by the Committee assigned to inspect the current framework addressing offences under the Companies Act, 2013, and related matters has been submitted. Injeti Srinivas, Secretary of the Ministry of Corporate Affairs, led the ten-member committee in categorizing all penal provisions into eight groups based on the nature of offences.
Key Findings and Recommendations
The Committee firmly recommended that serious offences be dealt with under existing law, which encompasses six categories. Contrastingly, offences viewed as fundamentally technical or procedural, falling primarily under two categories, should undergo an in-house adjudication process.
This approach aims to promote ease of doing business and improve corporate compliance. It would potentially decrease the number of cases filed in Special Courts, enabling faster processing of serious offences and ensuring severe offenders are held accountable.
Major Recommendations and Categorization
The Committee advised a restructuring of Corporate Offences to take the burden of routine offences from Special Courts. Out of the 81 compoundable offences, it suggested re-categorizing 16 by transferring them from special courts to an in-house E-adjudication framework due to their potential for misuse. However, the remaining 65 compoundable offences would continue under the jurisdiction of Special Courts. As for non-compoundable offences, no changes were recommended.
Proposed Changes to Current System
Further recommendations included establishing a transparent online platform for E-adjudication and E-publication of orders, expanding the Regional Director’s jurisdiction with increased pecuniary limits, and granting the Central Government approval rights for any changes in a company’s financial year or status.
About the National Company Law Tribunal (NCLT)
Instituted under the Companies Act 2013 on June 1, 2016, the National Company Law Tribunal (NCLT) is a quasi-judicial body responsible for resolving issues related to Indian companies. The NCLT has eleven branches, with two in New Delhi and one each in Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, and Mumbai.
Role and Jurisdiction of NCLT
The NCLT, under the Companies Act, adjudicates proceedings brought before the Company Law Board under the previous act, pending cases before the Board for Industrial and Financial Reconstruction, oppression and mismanagement claims against a company, winding up businesses, and all other powers provided under the Act.
Corporate Compliance and Corporate Governance
The Committee suggested stricter regulations to tackle shell companies, enhanced disclosures for public deposits, reduced time-frame for documents filing tied to creation, modification, and satisfaction of charges, and more severe penalties for non-reporting.
For shares with undetermined ownership, they should be transferred to the Investor Education and Protection Fund if not claimed by the rightful owner within a year. Additionally, the Committee recommended triggering a de-registration process for non-maintenance of registered office and disqualification of directors holding directorships beyond allowable limits.
In a move to ensure transparency, it was proposed that an independent director’s remuneration should be capped at a certain percentage of their income to prevent any significant pecuniary relationship that could compromise their independence on the board of the company.