Huge Relief under Companies Act, 2013 amid COVID-19 Pandemic

Ms. Nirmala Sitharaman, the Union Minister of Finance and Union Minister of Corporate Affairs, has announced certain reliefs and measures for organizations under the Companies Act, 2013 amid the COVID-19 pandemic and the nationwide lockdown. These announcements were made while releasing the last tranche of the economic stimulus package under the Atmanirbhar Bharat Abhiyan initiated by the Prime Minister for the revival of economy.

 She has announced the reforms under the Act to decriminalize certain technical defaults to aid the organizations in tackling with the lockdown. Violations under shortcomings in Corporate Social Responsibility (CSR) reporting, inappropriate board reports, defaults in filing of the cases, unreasonable delay in organising and holding Annual General Meetings of the companies and many more activities of the companies including minor defaults and procedural defaults will now be decriminalized.

Another measure announced under the Act is that a number of compoundable offences would be shifted to and under the Internal Adjudication Mechanism (IAM) thus increasing the sections which will be dealt by the IAM from 18 to 58. Also, 7 compoundable offences will be dropped altogether and 5 compoundable offences will be dealt under some other alternative framework.

Penalties imposed on small companies, producer companies, one-person companies and start-ups under the Companies Act, 2013 would be lessened to help these companies sustain the aftermath of the nationwide lockdown.

The Minister, in her announcement, also said that these moves and changes under the Companies Act, 2013 will lower the burden on the criminal courts and the National Company Law Tribunal (NCLT) and will “de-clog” them.

Apart from the decriminalization of various provisions under the Act, the Minister also made some announcements with regard to increase the ease of doing business. A major reform that has been made in this direction is that now the companies can directly list their securities in the stock exchanges in foreign jurisdictions without any obstacles. The private companies who list Non-Convertible Debentures in the stock exchanges will not fall under the definition of listed companies and hence these companies would not be able to list their securities in foreign jurisdictions.

A major change has also been introduced in the Insolvency and Bankruptcy Code, 2016 (IBC) wherein the minimum threshold limit to initiate a Corporate Insolvency Resolution Proceeding (CIRP) has been raised from 1 Lakh to 1 Crore. An embargo is imposed on fresh CIRP under the IBC and the debts incurred by the companies due to the pandemic and the nationwide lockdown will not fall under the definition of “default” under the IBC. A special framework for insolvency will be formed under Section 240A of the IBC for Micro, Small and Medium Enterprises (MSMEs). Also, the number of NCLT benches would be increased across the nation and additional benches would be created for quick resolution of cases and lessening the burden on the NCLTs.

By-

Ayushi Mishra

Student Reporter, INBA