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Corporate Affairs Secretary Injeti Srinivas (Photo: PTI)
Corporate Affairs Secretary Injeti Srinivas (Photo: PTI)

Government mulls de-criminalising penalties for Company Law breaches

  • The panel, headed by Corporate Affairs Secretary Injeti Srinivas, on 18 November proposed that penalty for 46 company law breaches should be toned down
  • The panel also recommended that penalties could be reduced for startups, small busineses, single businessmen and producer companies

NEW DELHI : To boost ease of doing business, the Union Cabinet will soon consider a proposal by the corporate affairs ministry to de-criminalise over 40 offences related to violations under the Companies Act, The Economic Times reported on Thursday.

The panel, headed by Corporate Affairs Secretary Injeti Srinivas, on 18 November proposed that penalty for 46 company law breaches should be toned down. These are the offences that do not affect public interest or do not involve element of fraud, which, according to the panel, could be taken up immediately for rationalisation.

The panel also recommended that penalties could be reduced for startups, small busineses, single businessmen and producer companies. It also endorsed parity on remuneration of executive and non-executive directors of companies.

With the Budget Session of Parliament set to begin on 31 of January, the ministry has only about two weeks to have the bill ready for amending the Act. The corporate affairs ministry is also working on several amendments to the Competition Act based on suggestions of a panel that reviewed the legislative framework of ensuring fair competition in the market.

These amendments represent a big shake up in the regulatory framework that seeks to lower the rigors of compliance for companies at a time the economy needs investment badly, while raising the bar on corporate governance and performance of important gate keepers such as auditors, independent directors and rating agencies.

At the same time, the National Financial Reporting Authority (NFRA), is taking bold steps to hold statutory auditors accountable in cases where fraud or financial failure is detected in companies the books of which were certified to show a fair and true account of their affairs.

The proposed amendments to Companies Act is the second round of toning down of penalty provisions in the law in recent past as the Narendra Modi government is keen that India gets a place among the top 50 nations in World Bank’s ease of doing business ranking.

The World Bank’s Ease of Doing Business 2020 survey released last year showed that India had climbed 14 places from the previous survey to stand at 63, among 190 countries. The government had last year amended the Companies Act to decriminalise 16 procedural offences into civil wrongs that does not warrant a jail term.

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