The Companies (Amendment) Bill, 2020 was introduced in the Lok Sabha on 17 March 2020 during the Budget session. Its goal was to modernise the Companies Act, 2013 by reducing compliance burdens, encouraging investment, and aligning the law with changing business needs. The Bill covered a wide range of changes, from enabling foreign listings and easing CSR norms to revising rules around beneficial ownership, independent directors, NCLAT benches, and producer companies.
Though the Bill could not be enacted immediately due to the COVID-19 outbreak, it marked an important step in shaping corporate law in India. Most of the proposed changes were based on recommendations from the Company Law Committee (CLC) in its November 2019 report. Additionally, while not part of this Bill, the Ministry of Corporate Affairs separately launched the Companies Fresh Start Scheme (CFSS-2020) to help companies complete pending filings without penalties.
This blog explains the key substantive provisions proposed under Part I of the Bill, highlighting the rationale behind each change and its expected impact.
BACKGROUND
The Companies (Amendment) Bill, 2020 aimed to make corporate law more flexible, business-friendly, and responsive to emerging needs. It introduced enabling provisions for the Central Government (CG) to prescribe detailed rules, reflecting the idea that law should be adaptable while leaving technical specifics to delegated legislation.
The Bill focused on four main areas:
- Substantive legal changes, including foreign listing, easing rules for debt-listed companies, NCLAT benches, and exemptions under Section 89.
- Introduction of a chapter on Producer Companies, aligning with older provisions from the 1956 Act.
- Relaxation in CSR norms.
- Decriminalisation of certain offences not involving fraud or public interest (covered in Part II).
The premature adjournment of Parliament due to COVID-19 delayed its enactment, but it laid the groundwork for significant reform.
KEY TAKEAWAYS FROM THE CHANGES TO SUBSTANTIVE PROVISIONS OF LAW
1. Enabling provision for CG to remove the status of certain class of companies from listed
Under the Act, private companies with listed debt securities were treated as listed companies, forcing them to follow the same stringent compliances as equity-listed firms. This discouraged private companies from debt-listing despite its benefits.
The Bill empowered the CG, in consultation with SEBI, to exempt such companies from the definition of “listed company.” While SEBI requirements would still apply, burdensome Companies Act provisions like independent directors, woman directors, or board committees would not. This sought to strike a balance between investor protection and easing compliance.
2. Reduction in timeline for change of name of the company based on the order of RD
Earlier, if a company’s name was found to resemble a registered trademark, the Regional Director (RD) could order a name change within six months. The Bill reduced this timeline to three months.
If the company failed to comply, instead of levying fines, the CG could allot an autogenerated neutral name and issue a new certificate of incorporation, forcing compliance without litigation.
3. Enabling foreign listing
For the first time, Indian public companies would be allowed to list securities in foreign jurisdictions, subject to CG rules. Such companies could also be exempted from certain provisions of the Act, including prospectus requirements, share capital rules, and beneficial ownership declarations.
This was aimed at giving Indian companies global access to capital markets and aligning India with international practices.
4. Further issue of shares
Section 62 mandated that rights issues give shareholders at least 15 days to subscribe. The Bill introduced an enabling provision allowing the CG to reduce this minimum timeframe through rules. The aim was to make rights issues faster and more practical in line with market realities.
5. Exemption from declaring beneficial interest u/s 89
While Section 90 already empowered the CG to exempt companies from significant beneficial ownership rules, no such exemption existed under Section 89. This caused disparity, especially for companies in International Financial Services Centres (IFSCs) or raising GDRs.
The Bill empowered the CG to exempt specified classes of persons or companies from Section 89’s declaration requirements, easing compliance for global-facing entities.
6. Exemption from filing certain resolutions by NBFCs
Currently, companies must file resolutions for granting loans, guarantees, or security in Form MGT-14. While banks were exempt, NBFCs and housing finance companies—engaged in similar lending activity—were not.
The Bill extended this exemption to NBFCs and housing finance companies, subject to rules prescribed by the CG in consultation with RBI and NHB. This recognised the routine nature of their lending operations.
7. Unlisted companies to publish periodic financial results
Large unlisted companies borrowing heavily from banks and financial institutions were found to be at the heart of several scams and defaults. To improve transparency, the Bill introduced Section 129A, requiring specified classes of unlisted companies to prepare periodic financial results, have them audited or reviewed, and file them with the RoC.
This aimed at better governance and oversight of large private borrowers.
8. Amendment to CSR provisions
The Bill adopted key recommendations of the High-Level Committee on CSR:
- Companies could carry forward excess CSR spending to future years, encouraging large, long-term projects.
- Companies with CSR obligations below Rs. 50 lakh would not need a separate CSR committee; the Board could handle it.
- Imprisonment for failure to spend CSR obligations (introduced but never notified in 2019) was proposed to be removed, aligning CSR with its voluntary spirit.
9. Remuneration to non-executive directors in case of inadequate profits
Under existing rules, managerial personnel could draw remuneration even in years of inadequate profits, but non-executive directors (NEDs), including independent directors, could not.
The Bill amended Section 197 to allow NEDs and IDs to receive remuneration as per Schedule V, recognising their role in strengthening board objectivity and effectiveness. Schedule V would later be amended to include specific limits for NEDs.
10. Provisions related to NCLAT
Given the growing volume of cases under Companies Act, IBC, and Competition Act, the Bill proposed:
- Removing the cap of 11 members in NCLAT.
- Empowering the CG to constitute benches of NCLAT in consultation with its Chairperson, improving access for litigants.
11. Introduction of new chapter w.r.t Producer company
Producer companies, first introduced in the 1956 Act, allowed farmers and agriculturists to form corporates for collective benefit. The Bill introduced a new Chapter XXIA, consolidating and modernising provisions for producer companies. Once enacted, it would replace the old Part IXA of the 1956 Act.
12. Exemption related to Foreign Companies’
The Bill introduced Section 393A, empowering the CG to exempt specified classes of foreign companies, particularly those operating in IFSCs, from all provisions of Chapter XXII of the Act. This was a major relaxation aimed at attracting foreign investment and easing business in India.
M2K REMARKS
The Companies (Amendment) Bill, 2020 represents a clear effort by the government to keep company law dynamic and responsive. By accepting nearly all recommendations of the CLC, it showed willingness to adopt a collaborative, stakeholder-driven approach.
On one hand, the amendments provide relief by reducing compliance, enabling global access, and updating provisions for governance. On the other hand, frequent amendments increase the cost of compliance and put pressure on professionals to stay updated. The Bill reflects both the opportunities and challenges of keeping company law in step with a rapidly evolving business landscape.
