How RoCs raised the game after company law decriminalization

In 2019, the Companies Act was amended to decriminalize 16 technical and procedural breaches such as failure to file annual returns and issuing shares at a discount, which could be objectively assessed and involved no injury to public interest.
In 2019, the Companies Act was amended to decriminalize 16 technical and procedural breaches such as failure to file annual returns and issuing shares at a discount, which could be objectively assessed and involved no injury to public interest.

Summary

These orders entail a penalty but no prosecution, easing the load on the judicial system and freeing up companies to focus on their business

Registrars of Companies (RoCs) stepped up action after the 2019 decriminalization of various company law violations, resulting in a near fivefold jump in orders in just four years. These orders entail a penalty but no prosecution, easing the load on the judicial system and freeing up companies to focus on their business.

Over 2019 and 2020, the government decriminalized over four dozen violations for faster adjudication of corporate defaults and lapses. These cases are now decided upon by RoCs under the ministry of corporate affairs (MCA), which are staffed by members of the Indian Company Law Service. MCA data showed that RoCs issued 157 orders on such cases in 2019, a number that jumped to 765 in 2023 till 22 November.

In 2019, the Companies Act was amended to decriminalize 16 technical and procedural breaches such as failure to file annual returns and issuing shares at a discount, which could be objectively assessed and involved no injury to public interest. Until then, these offences could attract either a penalty or imprisonment, or both. A year later, the law was amended again to decriminalize 35 more offences.

A government official said that decriminalization is one of the key drivers of the momentum in adjudication orders by the RoCs.

“Decriminalization of company law-related offences is a major milestone in improving ease of doing business and in reducing the burden on the criminal justice system," the official said on condition of anonymity.

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Secondly, thanks to a cadre revamp of the ‘company law service’ more than a decade ago, the initial batches of civil servants of the new Indian Corporate Law Service, trained in corporate laws, are now beginning to head RoC offices, bringing more vigour into administration and enforcement of laws. “Also, MCA is giving a strong impetus to improving ease of doing business and to ensure good corporate governance as the economy is expanding," the official cited above added.

The surge in RoC orders shows businesses are now able to move on after paying the penalty rather than fighting prosecution proceedings in tribunals, said a second official, who also spoke on condition of anonymity.

“Besides decriminalization of offences, what has aided in compliance management is the increased use of technology, which enables quick detection of defaults for corrective action. This approach can be adopted in administration of other economic laws, too, where this has not already been employed," explained D. Nagendra Rao, former president of the Institute of Company Secretaries of India.

As part of the ongoing revamp of the corporate affairs ministry’s MCA21 statutory filing portal, the government has already rolled out over 50 new web-based forms to replace the nearly 100 forms a company has to file in a year for various disclosures. In the case of most of these new forms, RoC approval has been replaced with an online acknowledgement, which is considered good enough. This facility under a ‘file and forget’ policy has freed up RoCs from manual and routine work to focus on enforcement action.

An email sent to an MCA spokesperson seeking comment remained unanswered.

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