UPSC PIB Summary Analysis August27

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Review of Penal Provisions of Company Act 2013

• The Committee constituted by Government of India in July 2018 to review the existing framework dealing with offences under the Companies Act, 2013 and related matters and make recommendations to promote better corporate compliance, has submitted its report.

Main Recommendations:

• Restructuring of Corporate Offences to relieve Special Courts from adjudicating routine offences:

1. Rre-categorization of 16 out of the 81 compoundable offences by shifting them from the jurisdiction of special courts to an in-house E-adjudication framework;
2. Rremaining 65 compoundable offences to continue under the jurisdiction of special courts due to their potential misuse;
3. Status quo recommended in respect of all non-compoundable offences, which relate to serious corporate offences;
4. Instituting a transparent online platform for E-adjudication and E-publication of orders; and
5. Necessitating a concomitant order for making good the default at the time of levying penalty, to achieve better compliance.

• De-clogging the NCLT by:

1. Enlarging the jurisdiction of the Regional Director with enhanced pecuniary limits for compounding of offences under section 441 of the Companies Act 2013 (the Act);
2. Vesting in 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.

• Recommendations related to corporate compliance and corporate governance:

1. Re-introduction of declaration of commencement of business provision to better tackle the menace of ‘shell companies’;
2. Greater disclosures with respect to public deposits, particularly in respect of transactions exempted from the definition of public deposits under section 76 of the Act to prevent abuse and harming of public interest;
3. Huge reduction in time-limit for filing documents related to creation, modification and satisfaction of charges and stringent penal provisions for non-reporting;
4. 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;
5. Non-maintenance of registered office to trigger de-registration process;
6. Holding of directorships beyond permissible limits to trigger disqualification of such directors; and
7. Imposition of a cap on independent director’s remuneration in terms of percentage of income in order to prevent any material pecuniary relationship, which could impair his independence on the board of the company.

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