TMI BlogGLIMPSES OF REPORT OF ‘THE COMPANIES LAW COMMITTEE’ – PART IIIX X X X Extracts X X X X X X X X Extracts X X X X ..... GLIMPSES OF REPORT OF ‘THE COMPANIES LAW COMMITTEE’ – PART III - By: - Mr. M. GOVINDARAJAN - Corporate Laws / IBC / SEBI - Dated:- 8-2-2016 - - CHAPTER XIV INSPECTION, INQUIRY AND INVESTIGATION NIL CHAPTER XV COMPROMISES AND AMALGAMATIONS Section 236 The Committee recommended that the references to the phrase transferor company in Section 236 may be modified to a company whose shares are being transferred or alternatively, an explanation be provided in the provision clarifying that Section 236 only applies to the acquisition of shares; CHAPTER XVI PREVENTION OF OPPRESSION AND MANAGEMENT NIL CHAPTER XVII - REGISTERED VALUERS The Committee felt that the provisions have far r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaching ramifications and the Government may decide on the framework after taking into views of stakeholders; The Committee felt that the valuer ought to be disqualified for valuing any asset, if he had any interest in such as asset, at any time during three years prior to his appointment and three years after the cessation as a valuer. CHAPTER XVIII REMOVAL OF NAMES OF COMPANIES FROM THE REGISTER OF COMPANIES NIL CHAPTER XIX REVIVAL AND REHABILITATION OF SICK COMPANIES NIL CHAPTER XX WINDING UP NIL CHAPTER XXI COMPANIES AUTHORIZED TO REGISTER UNDER THIS ACT Section 366 The Committee recommended to amend Section 366 (2) to allow for conversion into companies from partnership firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s etc., with two or more members , provided that in case of less than 7 members, the conversion would be a private company; The Committee recommended for changes to be made in the Rules to allow for registration of partnership firms, as no change in the Act was needed; CHAPTER XXII COMPANIES INCORPORATED OUTSIDE INDIA The Committee felt that as was clearly provided under Section 591(1) of the Companies Act, 1956 , it may be specifically provided that the remaining body corporate as covered within the definition of foreign company would need to comply with the provisions of Chapter XXII, as applicable. In this regard, necessary amendment in Section 379 was also recommended with respect to the threshold on transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, etc. conducted by such companies, to be prescribed in the relevant Rules. CHAPTER XXIII GOVERNMENT COMPANIES NIL CHAPTER XXIV REGISTRATION OFFICES AND FEES The Committee recommended for necessary changes to be made in the Act to bring clarity that the requirement of filing with additional fee for 270 days under first proviso to section 403 is applicable only to the six sections. Further, additional fees should be enhanced substantially (by up to 10 times of current prescribed amount) to deter non-compliance, and if a company files a document within the original period, not including the period allowed with additional fees, should be reduced to zero. A separate requirement for additional fees for the secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons other than six sections may also be prescribed ; The Committee felt that it may be clarified (in the Rules) that, irrespective of the delay, obtaining condonation of delay is not a pre-requisite to filing a document. It is a separate process under section 460 in respect of all belated filings. CHAPTER XXV COMPANIES TO FURNISH INFORMATION OR STATISTICS NIL CHAPTER XXVI NIDHIS The Committee felt that since the nature of business of Nidhis were similar to those of NBFCs, it was more appropriate to regulate them at a central level in the Ministry, or through one or more Regional Directors; CHAPTER XXVII NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL The Committee felt that changes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act, 2013 in Sections 409 (3)(A) (E) , 411 (3) AND 412(2) , as directed by the Honorable Supreme Court should be included in the Act; CHAPTER XXVIII SPECIAL COURTS The Committee recommended for the early establishment/designation of the special courts. It may also be considered whether special courts at the subordinate level may also be established, in addition to the Session Judge or Additional Sessions Judge; The Committee observed that Section 439 (2) does not have a provision for complaints to be filed by a person who is a member of a company without any share capital. Therefore, to include such persons within the ambit of Section 439, the words or member should be included after the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm shareholder in this section; The Committee recommended that a consequential change in Section 441 (6) ought to be made to refer to Special Courts, as well as other courts with whose permission the compounding may be allowed; CHAPTER XXIX MISCELLANEOUS The Committee observed that the extension of the liberal regime to private companies with no significant public interest would be ideal. However, it is difficult to define public interest for this purpose in a holistic manner and limiting it to private companies having debt above a threshold may leave out a large number of companies. Also the Act provides for various other requirements (like appointment of IDs, vigil mechanism, auditor rotation etc.) which are applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to companies depending upon their paid-up capital, turnover, debts etc. Recognition of the concept of public interest entity may require review of such thresholds/requirements and it may, therefore not be appropriate to provide a specific definition for public interest entities. However, in case of penal provisions which provide discretion to courts on imposing fines/imprisonment (e.g. in cases where the penal provisions provide for fine or imprisonment up to certain amount/term) the Courts/Tribunal could be empowered to consider certain factors before determining the fine/imprisonment. These factors could be size of the company, nature of business, injury to public interest, nature/gravity of default and repetition of default. Such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general provision could be inserted in the Act in this Chapter; The finds under Section 92(5) and 137 (3) have been viewed as excessive for once person companies and small companies. The Committee recommended that such class of companies should be subject to a fine, which is half of what is applicable under these provisions; In regard to adjudication of penalty the Committee felt that it would not be prudent to reduce the prescribed penalties for the adjudicating authority, who is not given any discretion on the quantum of penalty to ROC. Further, the Committee also felt the role of appellate body under section 454 would need to be clearly brought out as the appellate body may not be able to levy a lesser penalty than that was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied by adjudicating authority (i.e., RoC); Fee for filing The Committee recommended that a clarification be issued under Note 3 of Table B, that on a combined reading of the second proviso of sub-section (1) of Section 403 along with Table B, documents are permitted to be submitted, filed, registered or recorded under the provisions of the Act even after a delay of two hundred and seventy days from the date on which it should have been filed, on a payment of additional fee as prescribed. The Committee is of the view that a more liberal regime for fees/ additional fees be laid down for one person companies and small companies, it is recommended that the fees prescribed in Table A pursuant to Rule 12 of the Companies (Regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of Offices and Fees) Rules, 2014 should be halved for such companies; The Committee felt that felt that fees for timely filing may be reduced to zero, additional fees may be increased to up to 10 times of the current additional fees with steep slabs after the first slab. Repeated non-compliance should result in deprival of the moratorium from prosecution as specified under Section 403 and attract higher level of additional fees; Section 292A of the Companies Act, 1956 which provided for the requirements on Audit Committee provided that in case of contravention of such section the officer in default shall be punishable with imprisonment which could extend up to one year or with fine up to Rupees fifty thousand or both. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e committee feels that punishment for officer in default under section 178(8) may be aligned with the punishment provided under section 292A (11) of the Companies Act, 1956 ; The Committee observed that the Committee observed that it is essential for a director to disclose every concern or interest as required under sub-section (1), or any change thereto, so that the company is aware of such concerns or interests of the director. However, the Committee felt that the minimum fine of Rupees Fifty Thousand was on the higher side, and thus recommended for deletion of the provision for minimum fine; The Committee observed that the threshold of the fine needs revision, as the penalties throughout the Act have undergone upward revision. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was decided to recommend for revision of the disqualifying fine in Part I of Schedule V to Rupees Fifty Thousand in respect of conviction of offences under the Act; Regarding Section 447 the Committee observed that the provision has a potential of being misused and may also have a negative impact on attracting professionals in the post of directors etc. and, therefore, recommends that only frauds, which involve at least an amount of rupees ten lakh or one percent of the turnover of the company, whichever is lower, may be punishable under Section 447 (and non-compoundable). Frauds below the limits, which do not involve public interest, may be given a differential treatment and compoundable since the cost of prosecution may excee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the quantum involved; The Committee observed that the Committee observed that as per the scheme of the Act, most of the offences which are punishable with fine or imprisonment or both are technical / procedural in nature, and thus, for the leniency and ease in administration of the Act, the old provisions relating to compounding may be re-instated. Therefore, under sub-section (1), the Tribunal should have the power to compound offences punishable with fine as well as offences punishable with imprisonment or fine or both; The Committee recommended that under Section 147 (2) minimum fine as specified may be retained and maximum fine may extend to rupees five lakh or four times the audit fees, whichever is less, and under the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to sub-section (2), the minimum fine should be rupees fifty thousand and which may extend to rupees twenty-five lakh or eight times the audit fees, whichever is less; The Committee is of the view that the minimum fine under Section 132 on the firm may be rationalized to ₹ 5 lakh; Under Section 140(3) the Committee recommended that the minimum fine may be reduced to ₹ 50,000/- or the audit fees whichever is less; The Committee recommended that- Contravention of Section 42(7) and (9) is a procedural violation, hence it shall be subject to a penalty of ₹ 1,000/- per day of default, not exceeding ₹ 20 lakhs, commencing from the expiry of the time period within which the filings have to be made un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the said sub sections. It was felt that Section 403 should be applicable to such contraventions; Other contraventions under Sections 42 shall result in the company, its promoters and directors being punishable with penalty which may extend to the amount involved in the offer or invitation or ₹ 2 crores whichever is lower. Refund of all monies, as prescribed, may continue in both the sub sections. The Committee viewed the non filing of resolutions as a procedural default and the current penalty being on the higher side. Thus, the Committee recommends that the minimum fine for both company and officer in default be reduced to rupees one Lakh and rupees fifty thousand respectively, and a proviso be inserted in sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (2) of Section 117 , wherein the punishment prescribed for one person companies and small companies may be halved to that under sub-section (2). - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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