The Companies (Amendment) Bill, 2020 was presented in the Lok Sabha on 17 March 2020 as part of a larger plan to decriminalise certain provisions of the Companies Act, 2013. While Part I of the Bill focused on structural and governance changes, Part II targeted offences and penalties.
The objective was clear: reduce the criminalisation of technical and procedural defaults, de-clog the courts, and promote a more business-friendly environment without compromising on corporate governance. The Bill proposed converting several offences into civil defaults, enhancing in-house adjudication mechanisms, and re-categorising penalties. It drew heavily from recommendations of the Company Law Committee (CLC) in its November 2019 report.
This blog explores the specific amendments proposed in Part II of the Bill, their rationale, and the expected impact on companies, regulators, and stakeholders.
BACKGROUND
The government’s move toward decriminalisation was rooted in the recognition that not all non-compliances deserved criminal prosecution. Many defaults were procedural lapses—delays in filings, errors in disclosures, or minor technical oversights. Treating such defaults as criminal offences burdened courts, discouraged entrepreneurship, and increased fear among professionals and directors.
The CLC recommended a shift from criminal prosecution to civil penalties wherever possible. The Bill, therefore, sought to realign the balance between compliance enforcement and ease of doing business, while retaining strict action for fraud, public interest violations, and serious governance failures.
KEY TAKEAWAYS FROM THE CHANGES TO PENAL PROVISIONS
1. Re-categorisation of 23 compoundable offences to in-house adjudication
The Bill proposed shifting 23 offences from the judicial system to in-house adjudication by the Registrar of Companies (RoC). These included defaults such as failure to file annual returns, delay in filing resolutions, or lapses in maintaining statutory registers.
This step reduced the role of special courts in minor matters, allowing them to focus on serious frauds. It also meant faster disposal of cases, lower compliance costs, and less fear of criminal proceedings for companies and their officers.
2. Omission of 7 compoundable offences
Seven offences were proposed to be omitted entirely, as they were either redundant or adequately covered under other laws. By pruning overlapping provisions, the Bill simplified compliance requirements and reduced duplication.
3. Limiting punishment for certain offences to fine only
Some offences that previously carried imprisonment or both fine and imprisonment were revised to attract fine alone. The rationale was that punishment should be proportionate and that procedural defaults did not justify criminal liability.
This made the law more rational and aligned with global best practices where imprisonment is reserved for fraudulent or mala fide actions.
4. Reduction in amount of fines/penalties for certain defaults
The Bill lowered the financial burden on companies for specific lapses by reducing fine and penalty amounts. For example, penalties for delay in filing annual returns, delay in holding AGMs, or failure to file resolutions were rationalised.
This provided relief, particularly to small and medium companies that often struggled with compliance due to resource constraints.
5. Specific changes for small companies and one-person companies
Recognising the compliance challenges faced by small companies and OPCs, the Bill introduced proportionately lower penalties for them across several provisions. This encouraged entrepreneurship by ensuring that small entities were not overburdened by penalties meant for large corporations.
6. Enhanced role of in-house adjudication
The in-house adjudication framework, introduced earlier under the Act, was strengthened. The Bill empowered the government to shift more offences to this mechanism, promoting quicker resolution and easing the pressure on the judiciary.
The RoC would act as the primary adjudicator, with appeals to the Regional Director. This layered system ensured accountability while keeping processes streamlined.
7. Impact on compoundable vs. non-compoundable offences
Compoundable offences (minor defaults where parties could settle by paying compounding fees) were reduced significantly, as many were moved to civil penalties. Non-compoundable offences involving fraud, public interest, or serious governance lapses remained untouched, reinforcing the government’s zero-tolerance stance on corporate mismanagement.
8. Encouragement to entrepreneurs and professionals
By decriminalising several provisions, the Bill aimed to create a more enabling environment for entrepreneurs, directors, and professionals. Fear of prosecution for minor lapses often discouraged innovation and risk-taking. The amendments reassured business leaders that honest mistakes would not lead to criminal proceedings.
OVERALL IMPACT
The amendments under Part II of the Companies (Amendment) Bill, 2020 mark a major shift in the regulatory philosophy of Indian corporate law.
- Ease of doing business: By decriminalising minor lapses, compliance became less intimidating for businesses.
- Judicial efficiency: Special courts could focus on serious offences instead of being burdened with procedural cases.
- Investor confidence: Clearer, proportionate penalties enhanced India’s image as a business-friendly jurisdiction with robust governance.
- Entrepreneurial support: Small companies and start-ups benefited from reduced penalties and simplified compliance.
M2K REMARKS
The decriminalisation drive in Part II of the Bill demonstrates the government’s effort to balance regulatory oversight with ease of doing business. By acting on the CLC’s recommendations, it showed a willingness to listen to stakeholders and modernise the legal framework.
While the changes were widely welcomed, critics cautioned that reduced penalties should not dilute deterrence against repeated non-compliance. Ensuring strong enforcement of serious offences remained key to maintaining investor trust.
On the whole, the Bill’s penal reforms were a timely and necessary step in creating a corporate environment that punishes fraud but not honest mistakes.
