CORPORATE LAW AMIDST COVID-19: A PRIMER IN THE CURRENT TIMES

Abstract

The various amendments which were brought in by the Central Government terming it as
‘COVID-19 economic packages’ also included within its ambit certain benefits for the corporate
sector. This was brought about with the purpose of registering within ourselves the qualities of
‘self-reliance’ and ‘ease of living’ without any outside help whatsoever broadly for the domestic
corporations. It was the recommendations which were originally provided for and approved as
well by the Cabinet, i.e., the ‘Companies Amendment Bill, 2020’, now the Companies
(Amendment) Act, 2020. This paper will be incorporating the amendment which has been
proposed to be made to the earlier legislation with respect to the specific provisions under it. The
provisions such as relating to direct listing in foreign jurisdictions, decriminalization of offences,
corporate social responsibility (CSR), producer companies, exclusion from listed companies,
beneficial shareholding, exemption from filing resolutions, benches of the National Company
Law Appellate Tribunal (NCLAT). The paper shall also be dealing with how can the corporate
sector benefit from this amendment and what was the need for such amendment during the times
of a pandemic. Furthermore, an analysis will also be provided for so as to be aware of how such
‘economic measures shall boost the confidence of companies currently facing financial, human
resource, supply chain, and compliance difficulties’1.

Keywords: COVID-19, Self-reliance, Ease of living, National Company Law Appellate Tribunal
(NCLAT), pandemic.

1 <https://economictimes.indiatimes.com/small-biz/legal/companies-act-reforms-amid-covid-19-a-primer/
articleshow/76781817.cms?from=mdr> accessed 02 December 2020
 INTRODUCTION

As Mr. Narendra Modi has rightfully said that “Every citizen of this country has resolved to turn
this crisis into an opportunity. We have to make this a major turning point for this nation. What
is that turning point? A self-reliant India.” The idea of being ‘self-reliant’ is such that which
helps one strive better and even fills out the gaps which could have been obstacles in the path to
one’s success. The amended act relating to the companies, i.e., the Companies (Amendment)
Act, 2020 has brought about changes which almost every person had been longing for. Whether
it is pertaining to corporate social responsibility (CSR) or to the benches of the National
Company Law Appellate Tribunal (NCLAT), these were required for ‘ease of living’ and
without any outside help whatsoever mainly for the domestic corporations. There are more of
such areas which the newly-drafted act has given due consideration to such as direct listing in
foreign jurisdictions, decriminalization of offences, beneficial shareholding, exclusion from
listed companies, producer companies, exemption from filing resolutions, etc. The Companies
(Amendment) Act, 2020 got the assent from the President of India on 28th September, 2020 and
has been operative since then. This act was passed by the Lok Sabha on 19th September, 2020
and then by the Rajya Sabha on 22nd September, 2020. It includes 61 sections which have been
amended and 4 new sections have been added by the amendment for the regulation of producer
companies. In short, the act proposes to decriminalise the Companies Act, 2013 and to lighten
the rigour of the penalties. It provides for “remuneration to non-executive directors in case of
inadequate profits, producer companies, periodic financial results by non-listed companies, etc.”2
Thus, the act has been constituted for relaxation of the stress on the corporate sector with the
prevailing circumstances and at the same time, certain additional benefits to come out of the
losses suffered during the pandemic.

2 <https://taxguru.in/company-law/companies-amendment-act-2020-highlights-amendments.html> accessed 03
December 2020
 THE COMPANY (AMENDMENT) ACT, 2020: THE HIGHLIGHTS

The Act which had been long overdue brought about the amendments in the form of the
economic package of the Central Government during the prevailing circumstances. The
highlights of the amendments are as follows:-
1. Decriminalisation of the Companies Act by reducing the Penalties: Decriminalisation
of the Companies Act, 2013 has been the main feature of this Amendment. It has done
away with the ‘imprisonment for various offenses, substitutes fine by penalty in and
reduces the amount of payable as penalty across the board’. In certain minor omissions,
the previous existing penal consequence has been omitted. ‘One-person companies, small
companies, start-up company or Producer Company, or by any of the employed officer in
default, or any other person with regard to such company, then such company or such
person shall be held liable to one-half of the penalty specified for the same and it is
subject to a maximum of Rs. 2.00 lakh in case of a company and Rs. 1.00 lakh in case of
an officer who is in default or any other person’.
2. Exclusion from listed companies: The amended Act has empowered the Centre in
consultation with the SEBI, for excluding the companies issuing specified classes of
securities from the definition of a “listed company”. The objective and benefit of such
flexibility is ‘to exclude such private companies that list their debt securities on a
recognized stock exchange upon their allotment on private placement basis, thereby
falling under the definition of a “listed company” under the Act’. This would bring about
an incentive for the private companies seeking listing of their debt securities.
3. Direct listing in foreign jurisdictions: The Act empowers the Central Government to
‘allow certain classes of public companies to list classes of securities in foreign
jurisdictions’.
4. Exemptions from filing resolutions: The Amendment Act requires ‘the companies to
file certain resolutions with the Registrar of Companies, which includes resolutions of the
Board of Directors of the company to borrow money, or grant loans’. However, banking
companies have been exempted from filing resolutions passed to grant loans or to provide
guarantee or security for the purpose of a loan. This exemption has been extended to
‘registered non banking financial companies’ and ‘housing finance companies’.
 5. Benches of the NCLAT: The amended Act provides to establish benches of the National
Company Law Appellate Tribunal in New Delhi.
6. Corporate Social Responsibility (CSR): The Amendment Act ‘exempts companies with
a CSR liability of up to Rs 50 lakh a year from setting up CSR Committees’.

AMENDMENTS RELATING SPECIFICALLY TO CHAPTERS IX AND X

Section 129 A- Specified unlisted entities to prepare and file periodical financial statements

New section 129A, which has been introduced, prescribes certain specified classes of unlisted
companies such as to prepare and file their ‘periodical financial results at a frequency that will be
notified later’. This provision has been aimed at improving corporate governance.

Section 135- Corporate Social Responsibility

● Set Off of excess amount– Provision for ‘setting off excess amount against the
requirement to be spent under CSR activity for such number of succeeding financial
years and in such manner, as may be prescribed’.
● Exemption from forming CSR Committee– Where the amount which has to be spent
by a company for a CSR activity is not exceeding fifty lakh rupees, the requirement for
‘constitution of the Corporate Social Responsibility (CSR) Committee shall not be
applicable and the functions of such Committee provided under this section shall, in such
cases, be discharged by the Board of Directors of such company’.
● Penalty for Non Compliance- The penalty provision has been inserted when there will
be non-compliance of provisions of the Corporate Social Responsibility.

Section 140- Removal, Resignation of Auditor and Giving of Special Notice

In section 140 of the previous Act, in sub-section (3), ‘for the words “five lakh rupees”, the
words “two lakh rupees” shall be substituted’.

Maximum liability for an auditor has been reduced, by the amendment act, from Rs 5 lakh to Rs
2 lakh.
Section 143- Powers and Duties of Auditors and Auditing Standards

Under section 143 of the principal Act, for subsection (15), the following subsection shall be
substituted, which is as follows:—

“(15) If any auditor, cost accountant, or company secretary in practice does not comply with the
provisions of sub-section (12), he shall,—

(a) in case of a listed company, be liable to a penalty of five lakh rupees; and

(b) in case of any other company, be liable to a penalty of one lakh rupees.”

Maximum liability for an auditor has been reduced, by amendment, from

a) For listed companies- from Rs 25 lakh to Rs 5 lakh.

b) For other companies- from Rs 25 lakh to Rs 1 lakh.

Section 147- Punishment for Contravention

In section 147 of the principal Act,—

(a) in sub-section (2), the words, “section 143” shall be omitted.

Punishment under Section 143 which has been provided in Section 143 itself, thus, it has been
omitted in Section 147.

Therefore, if the contravention of Section 143 is committed then it would not fall under Section
147’s ambit now.
 CHARACTERISTICS OF THE AMENDED ACT

1. Relating to Penalty/ Imprisonment/ Fine:

Out of the 66 amendments made, 45 amendments are the ones relating to amendment in the
penalty clause of the provisions such as:

● In some sub-sections, penalty has been omitted.

● In many areas, imprisonment has been substituted with a penalty.
● In some places, the penalty/fine has been decreased.

2. Section 129A – New Section Introduced – Periodical Financial Result by unlisted

companies:

Purpose of inserting this section was to empower the Central Government to ‘provide by rules
such class or classes of unlisted companies to prepare periodical financial results of the
company, audit or limited review thereof and their filing with the Registrar within thirty days
from the end of that period as specified in the rules’.

3. Corporate Social Responsibility in Section 135:

The motive behind introducing it was to ‘allow companies, which have spent an amount in
excess of the requirement provided under the said sub-section, to set off such excess amount out
of their obligation in the succeeding financial years in such manner as may be provided by rules’.

4. Independent Director under Section 149:

A new provision to the Act which provides that ‘an independent director may receive
remuneration, if a company has no profits or inadequate profits in accordance with Schedule V
of the Act’.

5. Right Issue of Shares as provided for under Section 62:

The offer which shall be made by notice specifying the number of shares offered and limiting a
time not being less than fifteen days “or such lesser number of days as may be prescribed” and
would not be ‘exceeding thirty days from the date of the offer within which the offer, if not
accepted, shall be deemed to have been declined’.
6. Remuneration to Directors- Section 197:

The objective behind introducing this was ‘if a company fails to make profits or makes
inadequate profits in a financial year, any non-executive director of such company, including an
independent director, shall be paid remuneration in accordance with Schedule V of the Act’.

7. Section 117(3)(g):

Under sub-section (3), in clause (g), for the second proviso, the following proviso would be
substituted by the following:—

“Provided further that nothing contained in this clause shall apply in respect of a resolution
passed to grant loans, or give guarantee or provide security in respect of loans under clause (f) of
sub-section (3) of section 179 in the ordinary course of its business by,—

(a) a banking company;

(b) any class of non-banking financial company registered under Chapter IIIB of the Reserve
Bank of India Act, 1934, as may be prescribed in consultation with the Reserve Bank of India;

(c) any class of housing finance company registered under the National Housing Bank Act, 1987,
as may be prescribed in consultation with the National Housing Bank;”.

8. Producer Company – Chapter XXIA

Provisions relating to the Producer Company which was introduced after Section 378 as 378A to
378ZU.

The objective was ‘to insert a new Chapter as Chapter XXIA relating to Producer Companies on
similar lines as provided in the Companies Act, 1956’.
The Companies (Amendment) Act, 2020 which finally got the assent of our Hon’ble President as
on 28th September, 2020 and has thus been operative since then. It was passed by the Lok Sabha
on 19th September, 2020 and by the Rajya Sabha on 22nd September, 2020.

There are amendments in total of 61 sections in the previous Act and 4 sections have been newly
inserted which also includes the provisions for “Producer Companies”.

Major highlight of the Amendment Act is the decriminalisation of the ‘Companies Act, 2013’
and lightening the rigour of penalties. Besides relaxation of the CSR law, ‘remuneration to non-
executive directors in case of inadequate profits, producer companies, periodic financial results
by non-listed companies, etc. has also been provided’.

Thus, the amended act has brought in the changes which were required before the pandemic but
as a result of the aforesaid and the degrading economy of our country, this amendment found its
way through. There have been many acts such as the one in matter which were introduced for
boosting the economy of the country and easing the weight upon the private sector’s shoulders.
The main purpose of this amendment act was to take note of the procedural and technical aspects
of the corporate sector which had been sidelined for a while now and at times, were ignored
completely. The need was to absolve such notions and highlight their importance and their
cognizance as such. With the sudden stroke of the pandemic and everything going under
lockdown, it was a struggling time for all the establishments including the corporate sector. But,
this act, including many others too, was the primer in such times and gave a hope which is what
has kept them going on and on.
 CONCLUSION

In view of the dogged effort of the Government to facilitate greater ‘ease of living’, especially, to
law abiding corporates, a Company Law Committee (CLC) was constituted consisting of certain
representatives from the Ministry of Corporate Affairs, professional institutes, industry chambers
and legal fraternity on the 18th September, 2019, so as to present recommendations to
decriminalize some more provisions of the proposed Act, based on their ‘gravity and to
recommend other concomitant measures to provide further ease of living for corporates in the
country’3. CLC had submitted its report to the Parliament on 14th November, 2019. Based on the
recommendations of the CLC and the deliberations on the same by the Government, the
Companies (Amendment) Act, 2020 has been bestowed such that so as to ‘decriminalise certain
offences under the Act in case of defaults which can be determined objectively and which
otherwise lack any element of fraud or do not involve larger public interest’.
The reforms which have been brought out by this amendment had been long awaited rather than
being spurred in a pandemic. But, as has been appropriately said by C.J. Carolyn in “The Cherry
House” that “Sometimes too late is just in time”, which is quite the case with the Companies
(Amendment) Act, 2020. And the reason for which it has been deemed late is that, for example,
“a permissible list of equities in international markets will help raise funds and provide
competitive standing for Indian companies in the global market”. During such extraordinary
times, such economic measures would help uplift the companies lacking confidence in them due
to the financial, supply chain, human resource and compliance difficulties. Thus, the amendment
has been a great contributor in helping the corporate sector in becoming self-reliant and has
made them understand that how can ‘ease of living’ be achieved with the pandemic still round
the corner.

3 <https://www.corporateprofessionals.com/regulatoryupdate/analysis-of-the-companies-amendment-act-2020/>
accessed 03 December 2020