Technical Defaults Under Companies Act To Be Decriminalized : Minister Of Corporate Affairs

Nirmala Sitharaman, Union Minister of Corporate Affairs, on Sunday announced the plans to decriminalize various technical defaults under the Companies Act 2013.

Violations involving minor and procedural defaults such as shortcomings in CSR reporting, inadequacies in board reports, filing defaults, delay in holding AGM etc will be decriminalized, said Nirmala Sitharaman, Finance Minister, while announcing the last tranche of economic stimulus package on Sunday.

Majority of the compoundable offences sections will be shifted to the "Internal Adjudication Mechanism"(IAM) and powers of RD for compounding will be enhanced. 58 Sections will be dealt with by the IAM in place of the earlier 18 sections.

Seven compoundable offences will be altogether dropped and five will be dealt under the alternative framework. Lower penalties will be prescribed for small companies, one-person companies, start-ups and producer companies.

The Minister said that this move will "de-clog" the criminal courts and the NCLT. Appropriate Ordinance for effecting these changes will be brought in, said the Minister.

Ease of doing business

To increase the ease of doing business, the Minister announced that companies will be allowed to directly list their securities in foreign jurisdictions.  Private companies which list Non-Convertible Debentures on stock exchanges will not be regarded as listed companies. 

Steps will be taken for creating additional benches for NCLAT.

The Finance Minister also announced major changes in the regime under the Insolvency and Bankruptcy Code.

The Minister Nirmala Sitharaman announced that debts incurred due to COVID-19 lockdown will not be treated as "default" under the Insolvency and Bankruptcy Code 2016.

There will be an embargo on fresh insolvency proceedings will be initiated for a period of one year.

Minimum threshold to initiate insolvency proceedings will be raised to Rs 1 crore from the Rs 1 lakh.

For MSMES, a special insolvency framework will be notified under Section 240A IBC, added the Finance Minister.