Tax forms and a calculator. (Photographer: Luke Sharrett/Bloomberg)

Free Up NCLTs For Serious Cases, Company Law Committee Recommends

A government committee suggested that to de-clutter the company law tribunals, procedural or technical lapses or routine offences may be decided through an in-house process.

Set up last month, the panel was tasked with making recommendations to promote better corporate compliance. It presented its report today to Finance and Corporate Affairs Minister Arun Jaitley.

The committee classified penal offences under the Companies Act, 2013 into eight categories—of which six categories of serious offences would continue to be decided by courts and tribunals. In the case of the remaining two categories, which comprise 16 of the 81 compoundable offences, the onus will be shifted to an in-house e-adjudication framework and defaults would be subject to a penalty by the Registrar of Companies. At present, the National Company Law Tribunal is entrusted with adjudication of these offences.

The committee observed that this would serve the twin purposes of promoting ease of doing business and better corporate compliance. It would also reduce the number of prosecutions filed in the special courts, which would, in turn, facilitate speedier disposal of serious offences and bring serious offenders to book.
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To be clear, offences under section 447, which deals with corporate fraud, would continue to be decided by the NCLT.

In order to de-clog the NCLT, the committee recommended enlarging the jurisdiction of the regional director with enhanced pecuniary limits for compounding of offences, and moving the power to approve alteration of financial year and conversion of public companies to private companies to the central government.

This will certainly make a difference to the pendency at NCLTs, but not by much since these matters seldom took much of tribunal’s time.
Amir Arsiwala, Advocate, Bombay High Court

On the other hand, this change when implemented will have the effect of speedier adjudication of technical and procedural non-compliances where payment of penalty absolves a company’s liability, Atul Pandey, partner at Khaitan & Co, explains.

In addition, the committee also had other corporate-compliance and governance-related recommendations. Some of which include:

  • Re-introduction of declaration of commencement of business—to dissuade people from forming shell companies
  • Greater disclosures in relation to public deposits, specifically regarding exemptions to ‘public deposit’ definition under Section 76 of the Companies Act
  • Reducing penalty in relation to and time limits for filing documents for creation, modification and satisfaction of charge or security interest.

Overall, the report is a welcome step in improving corporate governance, transparency and accountability across companies in India, Pandey said.

Chaired by Injeti Srinivas, secretary in the Ministry of Corporate Affairs, the committee also included Uday Kotak, vice-chairman and managing director of Kotak Mahindra Bank; Shardul Shroff, executive chairman of Shardul Amarchand Mangaldas & Co.; Ajay Bahl, founder managing partner of AZB & Partners; Amarjit Chopra, senior partner at GSA Associates; Sidharth Birla, former president of Ficci; Preeti Malhotra, partner and executive director of Smart Group; and KVR Murty, joint secretary in the Ministry of Corporate Affairs.