Amending companies Act: Panel lists 83 offences for decriminalisation

The committee set up to amend the Companies Act is likely to decriminalise first-time offence by companies.

The panel, headed by Corporate Affairs Secretary Injeti Srinivas, will explore decriminalising 83 offences compoundable under the Companies Act, including those relating to remuneration of people in managerial positions.

According to law experts, this may dilute the Companies Act itself.

At present, remuneration to those in managerial positions is conditional. Penal provisions relating to these conditions are likely to be modified.

The Companies Act limits the remuneration of managerial personnel such as managing directors, who are also whole-time directors and managers, at 11 per cent of the company’s net profit. For whole-time directors, who are not managing directors, the remuneration must be 1 per cent of the net profit.

The remuneration payable to one managing director or whole-time director or manager should not exceed 5 per cent of a company’s net profit, and if there were more than one such directors, the remuneration should not exceed 10 per cent of the net profit to all such directors and managers combined.

While the National Company Law Tribunal (NCLT) is the adjudicating authority for all such violations, any amendment to the Act could make the Ministry of Corporate Affairs (MCA) an adjudicating authority for some of them, and the NCLT or regional directors could look into more serious company matters.

Another important area is that of independent directors. The issue is whether they should be made criminally liable for any malpractice in the company.

Compounding of offences was introduced in 2006. The accused need not appear personally and can be discharged on payment of the composition fee. Compoundable offences relate to areas, including declaration of beneficiary interest in shares and filing of resolutions and agreements.

Not all offences are compoundable. Offences punishable with imprisonment only, or imprisonment and fine, cannot be compounded. Also, offences where investigation has been initiated or is pending against the firm cannot be compounded. The MCA has constituted a 10-member committee, headed by Srinivas, for the review of penal provisions in the Companies Act, 2013.  The committee will consider whether these offences can be considered civil rather than criminal offences.