MCA PROPOSES MANY NEW AMENDMENTS TO THE COMPANIES ACT 2013, PUNISHING COMPANIES THAT FAILED TO SPEND 2% CSR AND “FIT AND PROPER” CRITERIA FOR DEBARRING DIRECTORS FROM HOLDING BOARD POSITION.

 MCA PROPOSES MANY NEW AMENDMENTS TO THE COMPANIES ACT 2013, PUNISHING COMPANIES THAT FAILED TO SPEND 2% CSR AND “FIT AND PROPER” CRITERIA FOR DEBARRING DIRECTORS FROM HOLDING BOARD POSITION.

BAN ON HOLDING BOARD POSITIONS

The move is a fallout of the IL&FS scandal, where the government was forced to supersede the board and take control but realised that it can do little to bar the disqualified directors, including some top names of the corporate sector, from holding board positions as the new Companies Act did not provide for such as action.

APPLICATION TO NCLT TO BAR DIRECTORS FOR 5 YEARS

As a result, it has decided to go back to the Companies Act 1956, which allowed the Centre to not just seek the removal of persons concerned with the management of a company and suspected of “fraud, misfeasance, persistent negligence or default in carrying out his obligations under the law or breach of trust” but also barred them from being appointed board members for five years from the date of removal. Under the new law the government will have to move an application before the NCLT.

LEVY OF PENALTY THAT DO NOT SPEND 2% TOWARDS CSR

MCA proposes to levy penalty on companies that do not meet the mandated 2% spending requirement towards corporate social responsibility (CSR).

The move to introduce a penalty on companies not meeting the CSR obligation was inserted as over 40% of the entities were not complying with the requirement, with close to a fifth not spending any money. “Companies have been given five years now. It is high time they start complying with the rules.

DISCLOSURE ON SBO

Companies now have to disclose the details of significant beneficial ownership, an obligation that was so far cast on shareholders. The government saw it as a loophole and has sought to plug it. The rules mandate that details of all shareholders with interest of 10% or more in a company, either direct or indirect, have to be disclosed.

MANDATORY DEMATERILISATION OF SHARES FOR ALL CATEGORY OF COMPANIES

The government has sought powers to mandate dematerialization of shares for all category of companies, a move that was recently extended to public unlisted companies. The step is seen to be crucial to identify the real owners of unlisted companies, which often remain hidden or can be benami holdings.

SPEEDING UP THE PROCESS FOR LISTING FOR COMPANIES

The government has proposed amendments to company law to strengthen the regulatory framework relating to the SFIO and NFRA, while simultaneously introducing measures to accelerate the listing process for companies.

NEW CSR IMPLEMENTATION OPTIONS

·      MCA has also amended Schedule VII to allow CSR spending via Zero Coupon Zero Principal (ZCZP) instruments issued by registered Not-for-Profit Organizations on Social Stock Exchanges.

·      Companies can allocate up to 10% of their CSR expenditure through these instruments.

·      This aims to ease compliance and provide transparent funding channels for NGOs.

BROADER AMENDMENTS IN THE BILL

DECRIMINALISATION OF OFFENCES:

Several violations will now attract civil penalties instead of imprisonment.

SIMPLIFIED COMPLIANCE:

·      Electronic service of documents permitted.

·      AGMs can be held virtually, but at least one physical meeting every 3 years is mandatory.

Certain companies may be exempted from appointing auditors.

·      Small company definition expanded: Paid-up capital limit raised to ₹20 crore; turnover limit raised to ₹200 crore.

Merger/amalgamation approvals: Threshold reduced from 90% to 75% shareholder/creditor approval.

# YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,