The Central Government has introduced economic packages in the time of COVID-19, which also included multiple reforms for the corporate sector, to induce self-reliance and ease of living for domestic corporations.
These recommendations were originally seen in the Cabinet-approved “Companies Amendment Bill, 2020”, tabled in the Lok Sabha session of March 2020. However, the Government is now expediting these amendments, by promulgating an ordinance, as an economic measure.
The new announcement only highlights some of the aspects of the Bill, but experts expect that the whole Bill will be given full effect as an ordinance itself.
The Bill includes the following reforms:-
India currently does not permit direct listing on foreign stock exchanges by domestic companies, and, vice versa, neither are foreign stock exchanges permitted to directly list their equity shares on Indian stock exchanges. The only permissible method for a domestic company to raise capital abroad it through depository receipts.
The Bill introduces this regime, whereby domestic companies will be allowed to access a larger pool of capital by directly listing foreign stock exchanges. This will especially be beneficial for startups and specific sectors like technology, as they require to raise capital from open markets.
The Bill proposes to decriminalize penal offences under the Companies Act, 2013, particularly provisions that are minor, technical, and lack subjective determination. This amendment has been noted due to its wide-ranged applicability to all kinds of corporations. This reform will come into action through the following mechanism:
This is the second attempt of the Government to decriminalize the Act, the first being the Companies (Amendment) Act, 2019.
Currently, companies having a net worth of Rs. 500 crore or turnover of Rs. 1000 crore or net profit of Rs. 5 crores or more, in the last 3 financial years are required to spend 2% of its average net profit towards its CSR Policy by setting up a CSR Committee.
The Bill will now allow companies, whose spending exceeds CRS obligation, to set off the excess amount towards their CSR obligations in subsequent financial years. The Bill exempts constituting a CSR Committee for companies with a CSR obligation of less than Rs 50 lakh.
Right now, "listed companies" also include private companies that list their debt securities on stock exchanges, without listing their shares, and are still subject to statutory compliances. This discourages such companies from listing their debt securities. The Bill proposes to exempt such companies from coming under the tag of a "listed company", so as to incentivize private company listing.
The Bill proposes to insert Chapter-XXIA in the Companies Act, to provide a framework for the classification of 'Producer Companies', thus providing them with relaxations and benefits. These relaxations would include conduction of meetings, memberships, and maintenance of accounts, etc.
The Bill seeks to extend the relaxation provided to banking companies, in terms of requiring to file board resolutions passes in relation to granting loans, security and guarantee, to non-banking financial companies (NBFC) and housing finance corporations (HFC).
The Act defines a "beneficial interest" as a person who holds 10% or more shares in a company or exercises significant influence. Such persons are required to make a declaration in the interest of the company. The new Bill empowers to the Government to exempt any such person from making a declaration if it is in the interest of the public.
The Bill proposes to set up various benches of NCLAT in places other than Delhi. The Government has already announced the setting up of an NCLAT in Chennai, that will have jurisdiction over Andhra Pradesh, Karnataka, Kerala, Lakshadweep, Puducherry, Tamil Nadu, and Telangana. This is an attempt to make it easier for litigants to access the NCLAT and reduce the burden on the existing single Delhi bench.
Conclusion:
These reforms, though being expedited by the pandemic, have been needed for a long time. Some of these reforms will help make Indian companies more competitive in the global market. These reforms will boost the confidence of companies currently facing financial distress.
