Decriminalization of Offences under Companies Act

    Edited by: Vaani Garg

    Definition: A simple dictionary meaning of the term ‘Decriminalization’ is the action or process of ceasing to treat something as illegal or as a criminal offence which means anything that was an offence earlier after this process of decriminalizing would no longer be an offence.

    Instances of Decriminalization under Companies Act, 2013

    The Companies Act, 2013 contains a total of 81 compoundable offences punishable with fine or imprisonment or both. Put forth Companies(Amendment)Act, 2019 being the first attempt to decriminalize various provisions under Company Law. Based on the recommendation of ‘Report of the Committee to Review Offences under the Companies Act, 2013’, the 2019 Amendment decriminalized 16 sections of the Act. These offences include: (i) issuance of shares at a discount, and (ii) failure to file annual return, and so on.

    In line with Companies (Amendment) Act, 2019, the government introduced Companies (Amendment) Bill, 2020 into the Lok Sabha on 17.03.2020 with the proposal to further decriminalize certain compoundable offences under the Act. The Companies (Amendment) Bill, 2020 has its genesis in the recommendations made by the committee lead by Mr Injeti Srinivas (Secretary MCA) . The proposed bill aimed at reclassifying 23 Compoundable Offences to be dealt with in-house adjudication framework, the omission of the 7 compoundable offences, restricting 11 compoundable offences to an only fine and alternate framework for 5 offences.

    Need for Decriminalising of offences :

    -Decriminalization of compoundable offences that are technical or procedural in nature is inherently beneficial to all stakeholders involved.

    -Decriminalization of such offences also promotes the ease of doing business for corporates and makes them more attractive to any potential investors.

    -Imposition of penalties by the Adjudicating Officer do not require them to establish the element of mens rea, making the process of imposition of penalties much faster than a criminal prosecution.

    -This move also helps direct the NCLT’s to focus resources only on defaults involving elements of public interest, ensure easy disposal of matter and hence enable them to focus on bigger criminal matters.

    -The company or officer in default involved is not subjected to a criminal proceeding therefore they can focus on the company.

    Conclusion:

    The decriminalization of minor offences under the Companies Act is indeed the way forward. Various other countries like the United Kingdom as well as the United States have adopted this approach. The penal provisions must be used only as a last resort to severely punish if there has been a large scale offence or a fraud and not to regulate the behavior of personnel. It is imperative that an optimum balance be maintained between the goals of promoting greater ease of doing business and strengthening the corporate governance framework under the Act.

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