Interview with Prof. Mr Amit Kashyap:The Companies (Amendment) Bill, 2020 and Ease of doing business
Aryakumari Sailendraja (Chief Operating Officer)
Vijayalskhmi Raju (News Editor)
Charishma Sekhar K (Jr.Associate Editor)
Anitha Tamizharasan (Jr.Associate Editor)
The Companies (Amendment) Bill, 2020 was introduced in Lok Sabha by the Minister for Corporate Affairs, Mrs Nirmala Sitharaman, on March 17, 2020. The Bill seeks to amend the Companies Act, 2013.
What is the ease of doing business? What is the relevance of ease of doing business for a country like India?
Ease of doing business is basically a ranking frame which is given by the World bank to all the countries on the basis of certain parameters and categories. These parameters include the ease of starting a business, ease of resolving insolvency, ease of getting various permits like electricity permits and getting tax is settled, getting compliance done for the incorporation of the company, and getting permits for doing business.
Now in these all categories since 2014 the government has made tremendous initiatives to bring the ranking of the country up to a level of Mark where India became a destination favourable for the investment. There are a lot of reforms which are going on in the financial sector as well as the corporate sector since 2014 and foremost like bankruptcy code and insolvency. So, in 2014 the ranking of the country was around 79 approximately. Now the rank is 63 after the initiatives taken by the government in the last couple of years. As we know the companies Act 2013 was initiated by the previous government but the huge initiative that has been taken by the present government.
But why in 2020 is it relevant for ease of doing business?
The 2020 Amendment Act is initiated by the government of India to bring ease of doing business or we can say making the lives of corporate easy. The basic purpose is to give a rational kind of scenario and level of playing field for all the types of Business and promote startup organizations and to promote entrepreneurs. We are going through world pandemic that is COVID-19 and because of that world economy also affected. So, 2020 amendment coupled with certain changes which have been made by the government of India like startup streams given by the Government of India for those who had been inactive or not doing business for the last 2 years. Now they can continue to do the business by payment of some fees, by getting some relaxations and because of certain delays that they could not file documents, now they can continue. Now 2020 companies’ amendment bill is to provide a living atmosphere for corporations because corporations are the backbone of the economy. This has been taken up by the government and may be left out by the previous year government that there should be foreign companies and investors should feel comfortable when they are coming to the country to invest, because the scenario of the country is different compared with the US and UK. They have a single regulator but we have a number of regulators. Already we have different kinds of structures, the same structures are not providing some convenient provisions to the ease of doing business.
so that's why it is required if we want to boost up the economy there is need of making changes in the Companies Act on to keep the approach of compliance and regulatory instead of making The stringent, having the loss instead of having technical kind of structure, we need to have simplicity in the law. This bill reduces the burden of judicial authorities by making structural changes and by dividing the labour of disputes. Resolutions like we already have all the cases must be filed in NCLT. It is not burdened by the insolvency bankruptcy up. The changes made in companies' Amendment Bill is not only made by the government; it is a reflection of representations made by industrial chambers, by various professors, by the stakeholders, by the legal fraternity, by the practitioners as well as the ministry. This approach is basically to have your balance in the kind of atmosphere that could boost global investment and business in the country. In total there are 72 changes made in this legislation and around 66 sections are there which have been amended.
Ease of doing business means the atmosphere wherein the compliance will be making convenient business transactions and also it will promote the investments made by domestic provisions. These provisions are:
● CSR (corporate social responsibility) relief
● Boosting of investment
India to reach 50th rank it is understood by buying ease of doing business but India got 15th rank around 67 and also to give an opportunity for the Indian Corporation to list abroad without extra Hassel. These are certain changes reflect upon companies Amendment Bill 2020 in ease of doing business.
Decriminalization understanding must be reflected on what is the criminalization of the corporate of it itself is very debatable. The corporation is the jurisdiction person. There is no sense of laying criminal liability on corporate. But it is a central position and it is criminal for the corporation also even in the US and UK. In India, we also have a central position in 2010 by the Supreme Court in the case of Iridium Telecom Moto Limited VS motor lo. It has been clear that corporate pollution can be made liable for the offence and it has been put on by the stakeholders that criminal intention of the judicial person is not their companies having certain legal entities only in some Limited kind of cases. The lifting of the corporate could be done and the criminal liability could be put on the who is actually is there has been debatable. So that is why there are a lot of offences which has been found by the company's committee which has constituted in 2019 to amend the Companies Act and all those offences have been omitted. Some of the offences have been reduced with a penalty, some even eliminated criminal punishment, and some has been reconstructed. This has actually amended the space of Corporation to do easily their business without any fear. This amendment is also expected to reduce corruption because now the delays and all those which are very normal and clerical in nature. Companies will not be forced to negotiate with any authority. So, this provision is the second phase that has been inserted in 2020 which is not new things that have been inserted. Because in 2019 this has been initiated and a lot of offences can be decriminalized and by this, we have Recategorized around 23 offences 66 compoundable offences has been changed and has been modified like non-maintenance of company records, noncompliance of disclosure obligation. If disclosure is not paid by the company now it could be done later. So, you can put your fine or some extra features on the company and it could be easily settled. There are around seven compoundable offences that have been omitted like there were non-compoundable but it was recorded that needs to be awaited. Because of certain structures for example; if you are not complaining of the order of the NCLT so it could be already provisioned, is there that could be settled through the contempt of court power of NCLT, so that there is no requirement of provisions under the Companies Act and there are also certain non-compliance with respect to liquidator. Like, if you are not following the order of liquidator for that we already have the provisions under the insolvency and bankruptcy code there was no record of Companies Act. So that has been committed for there it has reduced the penalty for certain companies like Startup companies, small companies if itself a new concept which has been inserted in 2013. But it was required that we need to give a safer place for the small companies to continue to exist. It is required that we should go for rationalization and reduction of The Contempt of penalties and also fewer penalties for certain companies because it is not advisable that we should treat an unequal as equal. It will reduce the kind of litigation in government for the company because the cases are always taking a lot of time for production companies itself not having any measures. It could become difficult for the provisions to have criminalization for Corporation. The second point would be to reflect on the Independent director. An independent director is an institution that is also considered to be the backbone for the good governance. Independent directors ensure good governance but there was no incentivization for the independent director. The salary of the independent directors was also not comparable to the other directors. Nowadays we have inserted the provisions under section 197 that is independent directory even in the case of where the company is not having perfect, they are will be paid just like olden directors including non-executive directors. They boost up the involvement of independent directors. The vision of government is to ethical burden to ethical problem the change in the independent director.Although the government has the regulation that is called Securities and Exchange Board of India (SEBI) which was based on the Kotak final committee report and this is the best work done by the reforms in the corporate governance. One is the change need for the NCD (Non-Conventional Debentures) is basically pure debentures so if you are creating a debt and your public company when you are supposed to go for listing and even when you are a private company and your NCD on the stock exchange you’re required to be listed so these change had been made that if you are a private company you will not be required to go for the listing without listing you can debenture. The stock exchange unlisted companies earlier are required to go for financial result publications and these companies amendment bill had made the very clear all the unlisted companies have to publish financial statement looking at a certain scenario which has happened earlier in the banking and financial institution like scam happening for the last couple of years. So, Section 129 A has been composed and which will come up very soon new guidelines and new rules will also come which is not very clear what kind of the structure will be there. So, looking at the large unlisted companies who have availed loans for above particular threshold limits, they are also required to go for results of publication of financial results periodical. Next is the change which has been with respect to corporate social responsibility, as we know the corporate social responsibility was the need of our 2013 amendment act was made. But at that time it was not a panel like that there is no penalty if you’re not complaining with Corporate Social Responsibility (Corporate Social Responsibility (CSR)) you’re required to complain with Corporate Social Responsibility (CSR) if you have a network of 500 crore or over 1000 crore rupees but if your are not doing that there was no penalty. In 2017 amendment act they are which excuses that penalty will be imposed which was not very much appreciated but now there was a high-level committee report constitution has been established in 2019.
To recommend certain provision for the Corporate Social Responsibility (CSR) scenario in India and in 2020 amendment says that it will not have minimal liabilities for the any of the case provided and there is a change which has been introduced by Corporate Social Responsibility (CSR) rule. The companies which are having Corporate Social Responsibility (CSR) obligation of around lakh rupee they are not required the Corporate Social Responsibility (CSR) committee can also go for a set of Corporate Social Responsibility (CSR) investment if u have an excess investment in 1 year you can take the benefit of excess investment in one year you can take the benefit of that investment in next year. So next year you are not required to go for the same amount of investment so this scenario is welcome stuff and also Corporate Social Responsibility (CSR) rules recently which has been introduced says that if u have unspent money left over which has not been spent in that case penalty is not been imposed but that money you have to transfer it to the national fund.
The ease of doing business promotion is reducing the burden of NCLT which is increasing in the number of cases. There is a provision under the Companies Act, Section 410 which says the power of the government we will have only 11 NCLT and 1 NCLAT. By having more number of NCLT and NCLAT we can reduce the burden and the bill also gives the power to the Registrar of the company to settle the certain disputes. They transfer to different other adjudicatory authority such as Internal Adjudicatory Mechanism (IAM).
IAM- introduced for the settlement of certain disputes in the regional director in power to settle the dispute of certain nature.
CATEGORY OF REFORMS:
1. Foreign capital – earlier provisions were not boosting to promote Indian companies to promote foreign exchange. It states that there is no requirement of taking a lot of permissions for the Forex for a certain category of the company which helps to promote startups. This is the alternate way of raising capital which companies get attracted.
2. Relaxation is given to the foreign investments – investing in international financial service centre like gift city which is a very promising project in Gujarat. IFSE companies are given certain benefits and they van issue global depository receipt even if we are an Indian company without the application of Section 89, states that we have to go for declaration of significant beneficiary owners.
3. Producer’s company – there is no provision in the Company’s Act 2013 but it is in 1956 act which is still applicable to the producer's company to give a structural framework. For the economic development, like involved in agriculture, food manufacturing and food processing.
1. The Bill removes the penalty and imprisonment in certain offences along with the reduction in the amount of fine. So don’t you think that the reduction of punishments and penalties can result in an increasing amount of offences?
It may not happen because this provision has been consulted after a lot of discussion and deliberations. The provision is not stating that it will not punish the companies for certain offences which are fraudulent in nature or another category of offences wherein settlement could not be done. There are offences wherein fees or fine should be reduced, which is made only for the startups. If we treat startups and initiators the same path with other grown ones then they won't flourish.
2. The Bill extends special provisions for payment of remuneration to non-executive directors. Does this extension empower or increase the power and position of the independent directors (i.e. non-executive directors) as it enhances the productivity of such non-executive directors because of their increased remuneration?
The provision is been added to non-executive directors because independent directors are contributing to the same level and even making the business more ethical and ensuring transparency. Their responsibility has been more and also in 2019 the provision has been included that they will also be criminally liable. Even though they are not involved in the execution of the business but their involvement, especially to the stakeholders, is also important. On the other hand, they are penalized which will become very difficult for the independent directors to play their role. This provision has inserted the remuneration which is not extra treatment it is to treat them equally for non-executive and independent directors.
3. In what ways the establishment of the National Company Law Appellate Tribunal is of use?
Bankruptcy. There were a lot of cases which were going on the NCLT and they will go NCLAT, which is only there in Delhi. Now we have reduced the burden from the criminal offences and they are changed to the civil offences. The civil side is getting burden, that is why the powers of NCLT and NCLAT are civil. When the cases of NCLT and NCLAT are going to increase then the civil side is going to increase which is an automatic requirement for having one more NCLAT. This is the perspective states that the government will come up with another NCLAT because NCLAT is having the same power just like the High Court. When we have several High Court in almost every state then why not NCLAT because they are addressing one of the most important structures of the economy i.e. the corporation and dispute relating to the corporation.
4. Power to enforce compromise or arrangement between a company and its creditors or members has been transferred from the Commission to the Court. How time-efficient will that be?
The objective of this kind of settlement is basically to promote amendment for the settlement of the disputes. It is believed that such a kind of scenario will reduce the burden of the settlement of the dispute. So there is a need for creating a balance so this companies amendment 2020 has created a balance by recategorization of various kinds of disputes and offences in civil penalties. This balance has been maintained and there is nothing like putting the burden on one commission or putting extra burden on adjudicatory authority. There is a balance which has been created by channelizing different entities so some of the issues.NVL now going through the Internal Adjudicatory Mechanism (IAM) for which maybe some more bodies will be created and such bodies are already there like adjudicatory officers in the form of Registrar of the company given the power but yea there will be a need. We could say that for empowering them or for restructuring the structure of the regional director when they are going to deal with all those cases. Hence, restructuring is required but distinguished of the cases is a good step.
5. Section 287 (a) has been amended. In the case of disagreement or an agreement suffers from conflict of interest on the part of the board, directors including the CEO adversely affecting the rights of the members, the court may terminate, set aside, or modify an agreement. Does that mean that the court has the absolute power regarding the issue?
It is not about the absolute power to the court in settlement of such kind of issues, it is based on the nature of the case that has been there. So some of the cases required for the intervention for that we cannot have any other option that if the court intervention is there it is assigned.
6. The requirement of having a common seal under section 23 has been abolished now. How can identification and branding be done now without a common seal?
In 2013 Amendment, Common seal has been enacted lately but there was no requirement as it was just a double stand. So it has not been made in the 2020 Amendment. Currently, the common seal has no relevance in the technological world. It could be done in the presence of a member or a director who is responsible to take any action or if he is not there then it could also be done. It has lost its relevance because now we have a lot of other officers like company secretary, charted accountancy to look into the complaints of the legislation whether it is done properly or not. Even most of the transactions are done electronically nowadays. So there is no requirement of having a common seal or retain it.
7. What is the actual purpose of removal of section 23 which states about the requirement of having a common seal?
That was found to be redundant. There was origin which was written in the act that the requirement of the common seal but it was found to be redundant. So there was no application as such of the origin. Practically there was no requirement. It was not advisable. Even it was addressed by various stakeholders that why to have a common seal and now we have use of an electronically. That’s why there is no sense of keeping the origin.
8. The provision and respect for quotas for persons with disabilities in public interest companies has been discontinued. How will the removal of this provision affect the disabled? What are your views?
This is a policy matter which has been done. We cannot comment on this why or whether it is wrong. But we could say yes, quotas in the commercial world are not advisable because of the sense of the business. It requires a different level of capabilities for certain cases. So imposing on the companies doesn’t make any sense if we want to manage the economy. Yes, when we talk about the public sector, it has been there for the promotion of some people who require some social support by the government. So if it is done away because of certain reasons that the public sector is going through a lot of downturns. So it requires that they should also boost up without having any kind of reservations.
To promote the “ATHMA NIRBAR BHARAT” the amendment has been there as an objective of the government. This amendment bill is to be a boon. This will automatically help new businesses and those businesses that are lost because of lots of compliance which were forcing them to shut down. Therefore, it will help the economy to give the full of doing business.
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