This article has been written by Ms. Shereen Iqbal, a student of South Calcutta Law College, Calcutta.
DECRIMINALISATION OF COMPOUNDABLE COMPANY LAW OFFENCES
INTRODUCTION (REASONS BEHIND DECRIMINALISATION)
The Companies (Amendment) Act,2020 expanded the scope of section 446B’s application to all provisions of the Companies Act,2013, which are subject to monetary fines. It also extended the same advantage to producer companies and start-ups. Indian corporate governance has changed significantly during the last few decades. Numerous changes to company law have been made since the Companies Act was passed in 2013, enabling corporate organisations to operate effectively.The decriminalisation of offences under the Companies Act is one such reform. In accordance with the Companies Act of 2013, the Indian government has made an effort to decriminalise some offenses. Although it has always been acknowledged that corporations can do wrong, it wasn’t until much later that these wrongdoings were given the label “criminal offences.” . The individualistic aspect of criminal law, such as the assessment of “guilty mind” or mens rea, was one of the causes of such a delay. Although civil law was initially used to govern corporate behaviour, there has been a trend to using criminal law for this purpose as the possibility of criminal behaviour by corporations has been recognised.
But even after it was established, the idea of corporate criminality has generated a lot of discussion, with opinions ranging from enthusiastic support to adamant denial. The main purpose of company law committee was so that compoundable offences should be examined, and recommendations should be made for such offences. It also tried to make it easier to do business in India and to lessen the burden on the criminal justice system. The committee also considered whether some business-related offences could be categorised as “civil wrongs. For e Examining if it would be feasible to implement a settlement process. Make suggestions for how to make the NCLT run more efficiently. Reviewing the Limited Liability Partnership Act of 2008’s current framework and offering suggestions for it.
DELETION OF COMPUNDABLE OFFENCES
Under this we will learn about the sections of companies act,2013 which was amended in 2020.
Section 48(5) of companies act,2013 said where any default is made in fulfilling the obligation in accordance with the provisions referred in other subsections of section 48 which deals with variation of share holders, then the company is punishable with fine which may extend to five lakh rupees and all the officer involved in this default shall be punishable with imprisonment which may extend to six months and fine not less than twenty five or fine or both which is deleted in the amended act of 2020.Section 59 of companies act,2013 deals with rectification of register of members, under its sub-section (5) it specifies the punishment and fine imposed on the company and on the officers which is also deleted.
Section 66 of companies act,2013 which deals with reduction of share capital ,section 66(4) specifies that the order of confirmation of the reduction of share capital by the tribunal should be published by the company as directed by the tribunal, further subsection(11) of this particular section deals with the punishment for not complying with the above section which is punishable with fine of five lakhs and may extend to twenty five lakhs, in the new amendment act section 66(11) was also removed. Further section 71(11) of companies act,2013 which again dealt with punishment of imprisonment or fine or both was also deleted in the amendment.
Section 342(5) specifies that every individual who is or has been an official or agent of the firm has a responsibility to provide all reasonable assistance in connection with any prosecution that is brought under this section, including the liquidator. Further sub-section (6) of section 66 specified, a person who refuses or neglects to provide the assistance required by the subsection (5) is subject to a fine that must not be less than twenty five thousand but could reach upto one lakh, in the amendment followed in 2020, this sub section (6) was deleted. There were other sections where imprisonment as a punishment were removed and the punishment was only subjected to fine. Section 242(5) specifies that notwithstanding any other provision of this Act, a company that has its memorandum or articles changed as a result of a Tribunal order made pursuant to subsection (1) shall not be permitted to change them in any way that is inconsistent with the order, other than to the extent expressly provided for in the order, without the Tribunal’s permission.
Further section 242(6) specifies that subject to subsection (1)’s provisions, the amendments made by an order to a company’s memorandum or articles shall, in all material respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act, and the said provisions shall apply accordingly. However section 242(8) of companies act, was amended after the amendment of 2020, this section earlier specified about fine or imprisonment or both for not complying with the above sub-sections but after the amendment it is only subjected to fine and imprisonment is removed.
Section 243(2) is also amended which earlier specified that if any person knowingly acts as a managing director or other director or manager of a company then he shall be punishable with imprisonment for a term of six months or fine which may extend to five lakh or both. After amendment this is also only subjected to fine and imprisonment is deleted. Section 128(6) specified that if the managing director, the whole-time director in charge of finance, the Chief Financial Officer, or any other company employee charged by the Board with adhering to the provisions of this section violates such provisions, they shall each be subject to a term of imprisonment that may not exceed one year or a fine that may not exceed five lakh rupees.
Section 8 (11) said that without limiting any other actions that may be taken in accordance with the provisions of this section, a firm that fails to comply with any of the requirements outlined in this section will be subject to a fine that will not be less than ten lakh rupees but might reach one crore. Default by the directors and any other officers of the firm will result in either imprisonment for a term that may not be less than twenty-five thousand rupees but may not be more than twenty-five lakh rupees, or both. After amendment this was also subjected to fine and not imprisonment. Similarly section 26(9),section 40(5),section 68(11),section 147(1),section 167(2),section 392 and section 347(4) of companies act 2013 was also amended after 2020.
RELATED CASE LAWS
1)Veeramachineni Seethiah v. Bode Venkatasubbiah involved a request for winding up the company. In such case, the appellant identified himself as the managing director. A shareholder and a director were the respondents. The application was essentially based on the argument that the directors were at odds and weren’t functioning in harmony. The accusations were refuted, and it was claimed that the corporation was still operating. A firm, it was said, could not be shut down based only on disagreements between majority and minority directors’ opinions in the absence of proof of misappropriation and misfeasance of funds.
2) The Loch v. John Blackwood ruling and Lord Clyde’s statements in the case of Baird v. Lees, which were cited by Lord Shaw in the Loch v. John Blackwood judgement, are of classic importance. A public firm operated in the case of Loch v. John Blackwood, and the managing director had a preponderating voting power. Shareholders submitted a petition for winding up. It was determined that the directors had left room for suspicion that their purpose in failing to conduct a public meeting, submit accounts, or recommend a dividend was to keep the petitioners in the dark about the company’s situation and activities.
According to Lord Shaw, a justifiable lack of confidence in the conduct and management of the company’s affairs must be the basis of an application for winding up under the just and equitable rule; however, this lack of confidence must be based on the conduct of the directors, not with regard to their personal lives or business dealings. Lord Shaw added that a lack of confidence should stem from a lack of probity in the management of the company’s operations rather than from discontent with being outvoted in business matters or on what is referred to as domestic policy of the company.
3) ORS & BRIJ NADAN INDUSTRIES PVT LTD VBhimanyu Singh and ORS, respondent Abhimanyu Singh & Ors. submitted an application before the National Company Law Tribunal, Principal Bench, New Delhi, pursuant to Sections 241-242 r/w Section 245 of the Companies Act, 2013. (hereinafter referred to as Tribunal). Before the Tribunal, Appellants (Company and Others) are Respondents. Regarding the petition’s capacity to be maintained, they submitted an objection. It was emphasised that because the company’s registered office is in Kolkata and not Delhi, the application will be heard by the Kolkata Bench of the National Company Law Tribunal.
CONCLUSION
To conclude with we will discuss about the positive impacts of decriminalisation of offences would result in fostering the growth of corporates and will give a positive impact on business decisions of India as well as foreign investors. Foreign Direct Investment is one of the key sources of funding for the Indian corporate sector (FDI). The Indian Companies Act has aligned itself with corporation law rules found in various other nations by establishing civil responsibility for the majority of offences. Additionally, it promotes the establishment of foreign enterprises in India by doing away with jail and only levying fines for transgressions of regulations pertaining to foreign corporations. By avoiding infractions that can be handled with a fee, decriminalisation enables the NCLT to use its time more efficiently. The Act of 2013 mandated compliance with CSR requirements for specific groups of businesses, which in part increased corporate social responsibility. The laws in this area were, however, quite harsh, with a maximum. Decriminalisation, though decreases the workload of courts and NCLT may promote political influence and corruption. The imposed monetary fines might not serve as a sufficient deterrent and might simply be viewed as a “cost of doing business,” in which case the defaulting company might unfairly benefit from them. Businesses with high turnover and substantial financial reserves may benefit from these penalties.
CONCLUSION
2)Companies Act,2013
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