Gautam Khaitan

Corporate Lawyer Gautam Khaitan explains key takeaways from the Companies (Amendment) Act, 2020

Gautam Khaitan 22 Nov 2020 12:00am

Corporate Lawyer Gautam Khaitan explains key takeaways from the Companies (Amendment) Act, 2020

The Companies Act, 2013 (the “Act”) was amended by the Parliament to make certain modifications to improve ease of doing business in India. Here are the key highlights of the Companies (Amendment) Act, 2020 (the “Amendment Act”).



 The President gave his assent to the Amendment Act, and the same was notified in the Gazette of India on 28 September 2020. The Amendment Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. Provided that different dates may be appointed for different provisions of the Amendment Act and any reference in any such provision to the commencement of this Amendment Act shall be construed as a reference to the coming into force of that provision. While explaining the important provisions of the Amendment Act, corporate lawyer and managing partner of OP Khaitan & Co. — Gautam Khaitan, says that major thrust is on de-criminalising and lightening of penalties of the Companies Act, 2013. 


De-criminalisation of offences and Reduction in Penalties 

Gautam Khaitan says that de-criminalisation of minor offences and reduction/ rationalisation of penalties under the Companies Act, 2013 in line with the recommendations of the Company Law Committee constituted in 2019 is the main feature of the Amendment Act of 2020. “While the Amendment Act substitutes imprisonment with fines or penalties for a large number of  offences, misdemeanours have been omitted from penal consequences and the dreaded ‘criminal’ tag.. Moreover, for small companies, startups, and one-person companies, the Amendment Act has significantly reduced the penalties. Not only do these proactive measures reduce the ever-increasing burden on the courts and tribunals, leading to an improved and focused functioning of our authorities, they also actually enable ease of doing business in the true sense by sending the right signal and encouraging small and upcoming businesses to fearlessly adopt and benefit from corporate and organized structures” 

 

Alteration in the definition of a “listed company”  

“Earlier, any company with its securities listed on a recognised stock exchange qualified as a listed company. This covered even private companies which had got their debt securities listed, and such companies were accordingly required to follow the strict and cumbersome compliance requirements which have evolved over the years for the other public listed companies. Now, the Amendment Act empowers the Central Government, in consultation with the Securities Exchange Board of India (SEBI), to exempt any class of companies and securities from being as regarded as a “listed company” within the meaning of the Act, as it may prescribe so the private companies with listed debt could possibly be kept out”


Direct Listing in foreign jurisdictions 

Gautam Khaitan says that access to capital at a lower cost from wider set of investor sources in short time period is critical especially for new-age and high technology companies.  “In this direction, the Amendment Act entitlesthe Central Government to prescribe certain classes of public companies incorporated in India to issue securities for listing on stock exchanges in foreign jurisdictions, without the need for a prior or simultaneous listing in India.” Gautam Khaitan said that this is a step in the right direction of ensuring ease of doing business. The Amendment Act also allows Central Government to exempt certain class of public companies from the application of certain provisions of the Act. There would now need to be some further enabling and consequential changes in foreign exchange and other laws in the coming days so that the corporates are able to take advantage of the amendment and do not get struck in procedural and implementation issues and bottlenecks.

 

Reduction in timelines for a rights issue

Before the Amendment Act, as per Section 62 of the Act, a rights issue offer period was required to remain open for 15 to 30 days from the date of offer, and if no response is received during such period, the offer was deemed to have been declined. As per Gautam Khaitan, “The Amendment Act has sought to empower the Central Government to prescribe lesser number of days than the hitherto statutorily prescribed 15 days which was too long a period.  While a private company could seek approval of 90% of its shareholders and get exempted from the minimum 15 days requirement, it was not always that such a high shareholder approval threshold could be achieved even in such companies easily. The Amendment Act is definitely an important step in ease of doing business as there could possibly be much faster access to funds, which is the lifeblood of a business.”

 

Modification in CSR provisions

As per Gautam Khaitan, the modifications made in the CSR provisions are noteworthy. “While the Amendment Act has exempted a company required to spend less than INR 50 lakhs in a year from the requirement of setting up a CSR Committee (so that the Board of Directors itself can carry out the related functions), more importantly, any excess amount spent on CSR activities under the Act over and above the statutorily specified limits can be set off for certain number of succeeding financial years and in a certain manner as may be prescribed (thereby  allowing larger corporate CSR spends than that statutorily required  which can subsequently be set off). Further, a penalty provision has been newly inserted in Section 135 for non-compliance of provisions relating to CSR, both on the company as well as on every officer in default which has to be borne in mind” “

 

Exemptions for NBFCs and HFCs from filing resolutions 

He explained how companies are required to file certain resolutions with the Registrar of Companies such as resolutions of the Board of Directors of the Company to grant or borrow loans. “The banking companies were already exempted from filing such resolutions. Now, the amendment has extended such exemption to the NBFCs and HFCs thereby removing unnecessary compliance burden on non-banking companies doing lending businesses in their normal course.” 

 

Payment of remuneration to non-executive and independent directors in case of inadequacy of profits or in case of losses

In case of inadequate profits or in case of losses, hitherto only executive directors were entitled to receive remuneration from the companies subject to the prescribed limits. “The Amendment Act has allowed payment of fixed remuneration even to non-executive directors including independent directors subject to prescribed limits, thereby recognizing and removing the unnecessary discrimination in their compensation structure as compared to executive directors, in case the profits of a company are inadequate or where the company is in losses”.   

With over 3 decades of experience in the sector, Gautam Khaitan is one of the leading counsels in the corporate legal world. He has handled various corporate and litigation work for various leading multinational and national companies, banks, and financial institutions all over the world including but not limited to mergers, demergers, acquisitions, joint ventures, structuring transactions, collaborations, Facility Documentation, External Commercial Borrowings, arbitrations, etc.



Tagged: Gautam Khaitan   Amendment Act     
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