ANALYZING THE

DECRIMINALIZATION OF
OFFENCES UNDER THE
COMPANIES AMENDMENT
ACT,2020
 BACKGROUND TO THE AMENDMENT

 The Corporate Law Committee(CLC) was constituted by the Ministry of Corporate Affairs(MCA) on
18th September 2019 to facilitate greater ease to law abiding corporates.
 The CLC submitted its report on 14th November 2019.
 The Companies (Amendment) Bill,2020 was introduced in the Lok Sabha on 17 th March 2020.
 The Bill was passed by the Lok Sabha on 19 th September 2020 and by the Rajya Sabha on 22 nd
September 2020 and got its Assent from the President on 28 th September 2020.
 The major changes brought about by the amendment are- decriminalization of certain offences,
change in definition of listed company, separate chapter on producer company, changes in CSR
spending obligations, listing of securities abroad, periodical returns by unlisted companies etc.
Offences Decriminalized through the
Amendment
 For Seven(07) Offences relating to the winding up of the companies, correcting the registers of
security holders and redemption of debentures which can be heard by the NCLT were omitted
through the amendment.
 For Twenty-Three(23) compoundable offences in which were of criminal nature and attracted
imprisonment along with fines which were of criminal nature were converted into civil wrong the
penalties imposed were converted to civil in nature.
 For certain offences for which imprisonment has been omitted, the penalty has been made stricter.
 For Twenty-Two(22) offences, the quantum of monetary penalty imposed has been reduced.
 While deciding the amount of fine, the nature of the Company will also be taken into
consideration.
OFFENCES UNDER THE COMPANIES ACT,2013
REASONS SUPPORTING FOR
DECRIMINALIZATION

 The Companies Act,2013 had offences divided into three categories on basis of penal provisions
attracted by them:-
1. Civil Liability
2. Compoundable Offences
3. Non-Compoundable Offences
 The Companies Act 2013 includes various criminal penalties for minor and technical non-compliance,
which were major disadvantages with regard to the ease of doing business as investors were
prevented from investing due to such penal provisions.
 The appointment of the CLC was with the objective to review the existing compoundable and non-
compoundable offences.
 The objective of the CLC was to recommend re-categorization of offences for separating the criminal
aspect from offences where there was no harm to the public interest.
 Offences which attract only civil liability, the motive is devoid of default or wrong (mens rea), which
is a required element for the determination of crime. Therefore, crimes that can be checked prima
facie by rational examination should not incur criminal liability and must be re-classified as civil
offences.
 This will help companies save their trust, which can be negatively affected when certain minor and
technical defaults are linked to an element of crime.
 The judiciary is already overburdened with pending cases. Under the Amendment Act, a variety of
corporate offences that would otherwise be adjudicated by a government-appointed adjudicator
 Therefore, the referring of particular offences to an adjudicator as proposed under the Amendment
Act would lead to a rapid disposal of cases and help unburden the judiciary.
 At a time when the country's economy is in a deplorable state, with the lowest GDP ever (due to the
COVID-19 pandemic) and private sector investment at a 15-year low due to tax authorities' abuse, etc.
REASONS AGAINST THE DECRIMINALIZATION

 The first reason being depending on their size and financial position, monetary penalties levied on
these firms will affect each of these firms differently.
 It should be stressed that the aim of creating an infallible method for the calculation of fines for
businesses of all types / sizes is not only impractical but also impossible when looking at the diversity
of different companies across the country.
 The the adjudication of penalties is a quasi-judicial role which will now be assigned to a non-judicial
body, the Adjudicating Authority whose offices are under the direct control of the Central
Government which can be biased at times.
 There is also a risk that businesses will knowingly break the law as the damage sustained due to the
application of fines will be much less than the benefits received from such violations.
 In a country like India, where opportunistic behavior is quite rampant, the determination of
penalties is something to be examined. In a situation where a determinable advantage accrues out of
a particular breach, the penalty levied should be greater than the benefits earned.
SUGGESTIONS

 Setting different limits of fine depending on the size of the business or levying fines based on a
certain percentage of the revenue, the MCA can take a proportionality test. This could be explicitly
provided for in the Act, or the courts could provide guidelines.
 The Adjudicating Authority be constituted of retired/sitting judges or judicial officers to enhance
transparency in the working of Adjudicating Body.
 The Adjudicating Authority be provided with powers of discretion for ensuring that the unfair
advantages do not go beyond fines and the amount disgorged. In this way, it is possible to curb
opportunistic behavior and restrict undue advantages.
CONCLUSION

 The implementation of the Amended Act will surely help in the framing of a well organised
corporate governance in the country.
 This will in turn help in boosting the stakeholder trust as they will not have to think about the
criminal penalties.
 The underlying aim behind the decriminalization is to encourage the ease of doing business in India,
which, considering the negative economic effect of COVID-19, is more relevant than ever.
 Investors will feel safeguarded from criminal prosecution for minor non-compliance after
decriminalization, and this will ultimately result in higher foreign investment that will improve
India's economy in exchange.