The Companies (Amendment) Bill, 2020, was introduced in the Lok Sabha on March 17, 2020. It was passed by Parliament and became an Act on September 28, 2020. Various provisions of the Amendment Act have been made effective from different dates, including December 21, 2020, January 22, 2021, February 11, 2021, March 18, 2021, March 24, 2021, September 1, 2021, and July 1, 2022. However, the amendment proposed to section 23 of the Companies Act has not been notified as of June 2022. All other provisions have been notified and are in force.
According to the Statement of Objects and Reasons attached to the Bill, the main purpose of the amendments is to provide greater ease of living for law-abiding corporate entities. The Act primarily seeks to decriminalize certain offences, rationalize penalties, and provide ease of compliance to companies.
Some of the significant highlights of the Amendment Act include the decriminalization of several offences, providing the central government with the authority to exclude certain classes of companies from the definition of listed companies, allowing public companies to list securities in foreign jurisdictions, reducing timelines for rights issues, introducing relaxations in the declaration of beneficial interest, granting exemptions to NBFCs and housing finance companies, mandating periodical financial reporting for certain unlisted companies, and relaxing the corporate social responsibility framework.
Decriminalization of Offences
One of the key reforms brought by the Companies (Amendment) Act, 2020, is the decriminalization of certain offences under the Companies Act. The amendment focuses on defaults that can be objectively determined and do not involve fraudulent intent or broader public interest. This approach is aimed at easing the compliance burden on companies while maintaining necessary enforcement mechanisms.
The following steps have been taken in this direction:
Re-categorizing 23 compoundable offences out of a total of 66 to an in-house adjudication framework. Under this framework, penalties are imposed by adjudicating officers instead of the earlier provisions that involved court proceedings and imprisonment.
Omitting 7 compoundable offences, which essentially means that no penalty or punishment is applicable for these specific breaches unless otherwise provided elsewhere.
Amending provisions relating to 11 compoundable offences by removing the imprisonment component, thereby limiting the consequence to fines only.
Introducing alternative frameworks to deal with 5 offences that have been considered suitable for processes other than the conventional legal route.
With these changes, companies and their officers can avoid criminal prosecution in the specified instances and instead face departmental adjudication that results in monetary penalties. These provisions have already been notified and are currently in effect.
Power to Exclude Certain Companies from the Definition of Listed Company
A new proviso has been inserted into section 2(52) of the Companies Act, 2013. This provision empowers the central government to exclude certain classes of companies from the definition of a listed company. The objective is to eliminate companies that are technically listed but do not meet the regulatory objectives intended for listed entities, especially those listed solely for debt securities.
This provision became effective on January 22, 2021. As pRuleule 2A of the Companies (Specification of Definitions Details) Rules, 2014, effective from April 1, 2021, the following companies are not considered listed companies:
Public companies that have not listed their equity shares but have listed non-convertible debt securities or non-convertible redeemable preference shares on a private placement basis, by relevant SEBI regulations.
Private companies that have listed their non-convertible debt securities on a recognized stock exchange under a private placement basis.
Public companies that have not listed their equity shares in India but are listed in foreign jurisdictions as specified under section 23(3) of the Companies Act.
By removing these companies from the scope of listed companies, the amendment seeks to ensure that regulatory requirements are applied only to those entities for which they are most relevant, avoiding unnecessary compliance obligations for others.
Rectification of Company Name if Identical to a Trademark
The Companies (Amendment) Act, 2020, has amended section 16(1)(b) of the Companies Act, 2013. If a company is inadvertently registered with a name that is identical or too similar to a registered trademark, the central government may direct the company to change its name within three months of receiving such direction. Previously, the time allowed was six months.
If the company fails to comply with the direction, the central government will allocate a new name to the company. The Registrar will then update the company’s name in the register of companies and issue a fresh certificate of incorporation. The company must use this new name in all official communications. However, the company can later change this name through a regular name change procedure under section 13.
If the company does not comply, the Registrar will assign a name using a specific format: ORDNC, followed by the year, a serial number, and the existing corporate identity number. ORDNC stands for “Order of Regional Director Not Complied.” The updated name and certificate will be issued in Form INC-11C.
This amendment took effect from September 1, 2021. It strengthens the protection of intellectual property by ensuring that corporate names do not infringe on existing trademarks.
Exemption for Public Companies Listing Securities in Foreign Jurisdictions
The amendment to section 23 of the Companies Act, 2013 introduces provisions allowing public companies to list securities in foreign jurisdictions. While this provision has been inserted, it had not been notified or made effective as of June 2022.
Under section 23(3), public companies may issue specified classes of securities for listing on permitted stock exchanges in prescribed foreign jurisdictions. Section 23(4) enables the central government to exempt such public companies from the applicability of certain sections of the Act, including provisions under Chapter III, Chapter IV, section 89, section 90, and section 127. These exemptions are to be granted via notification, and every such notification must be placed before both Houses of Parliament.
This change aligns the Indian corporate environment with global practices and facilitates easier access to foreign capital markets for Indian companies.
Reduction in Timeline for Rights Issue
Section 62 of the Companies Act, 2013 has been amended to permit the reduction of the minimum period for a rights issue. Earlier, the offer letter for a rights issue had to remain open for at least 15 days. The amended provision allows this period to be shortened to less than 15 days, provided it is prescribed under the rules.
This change enables companies to raise capital more swiftly, especially in situations that require urgent financing or quick access to shareholder contributions. The amended section 62(1)(a)(c) came into effect on January 22, 2021.
The flexibility granted by this provision is particularly useful in competitive markets where timing can influence investment decisions. It balances shareholder protection with corporate agility in fundraising.
Exemption from Declaration of Beneficial Interest in Shares
Section 89 of the Companies Act, 2013 has been amended to give the central government the authority to exempt certain persons from the obligation of declaring beneficial interest in shares. Section 89(11) allows exemptions to be granted, except concerning section 89(10), where such exemptions are deemed necessary in public interest. The exemption may be unconditional or subject to prescribed conditions.
This provision was inserted on January 22, 2021. Additionally, section 90, which pertains to the declaration of significant beneficial ownership, was amended to convert criminal offences into civil penalties. This contributes to the overall objective of decriminalization and ease of doing business.
These amendments are particularly relevant to institutional investors or other regulated entities where beneficial ownership is already disclosed through alternative mechanisms. Exemptions reduce the redundancy of compliance requirements in such cases.
Exemption to NBFCs and Housing Finance Companies from Filing Resolutions
Section 117 of the Companies Act, 2013 has been amended to exempt certain classes of Non-Banking Financial Companies and Housing Finance Companies from filing resolutions related to loans and guarantees. This exemption, effective from January 22, 2021, applies to board resolutions passed under section 179(3)(f) for granting loans or providing guarantees in the ordinary course of business.
Previously, only banking companies were exempted from filing such resolutions. The amendment now extends similar treatment to NBFCs and housing finance companies, reducing their regulatory burden and streamlining processes.
This reform recognizes that such companies operate under specific financial regulations and supervision and are engaged in lending as their primary business activity. The change avoids duplication in compliance and focuses regulatory efforts where they are most needed.
Specified Unlisted Companies Required to File Periodical Financial Results
Section 129A has been inserted to require certain specified unlisted companies to prepare and file periodic financial results, similar to the requirements imposed on listed companies under SEBI regulations. This includes preparing financial results periodically, obtaining board approval, conducting an audit or limited review, and filing the results with the Registrar within thirty days of the end of the relevant period.
This provision, effective from January 22, 2021, applies to companies that may not be listed but have significant operations or public interest. The aim is to enhance transparency and accountability among such entities.
Requiring periodic financial disclosures also helps regulators and stakeholders monitor the financial health of these companies and reduces the risk of unexpected financial failures.
Decriminalization of Offences Under the Companies Act
One of the most significant features of the Companies (Amendment) Act, 2020, was the continuation of efforts to decriminalize minor, technical, or procedural violations under the Companies Act, 2013. This decriminalization process began with the Companies (Amendment) Act, 2019, which introduced changes for 16 sections, and was further extended by the 2020 Amendment to another 48 sections. The core objective behind this decriminalization was to facilitate ease of doing business in India by removing criminal penalties for procedural lapses that did not involve fraud or harm to public interest. These offences were mainly compoundable offences that did not involve an element of fraud. By shifting these offences to internal adjudication mechanisms, the legislature aimed to reduce the burden on the courts and National Company Law Tribunal (NCLT), allowing them to focus on more serious violations.
Types of Offences Decriminalized
The Companies (Amendment) Act, 2020 introduced amendments to shift certain offences from the purview of the courts to an in-house adjudication mechanism. These included defaults such as delay in filing annual returns, non-filing of resolutions and agreements, non-compliance with the requirement to maintain registers, and failure to provide notice for board meetings. Penalties for these were made civil, and were to be imposed by adjudicating officers instead of criminal courts. Some offences were entirely omitted, while others were modified to be penalized only with monetary penalties, with imprisonment being removed as an option. In some cases, the quantum of penalty was capped or made proportionate to the company’s size. For example, if a One Person Company (OPC) or a start-up company failed to comply with certain requirements, the penalty was reduced to one-half of what would otherwise apply. This differentiation introduced a level of proportionality and fairness in enforcement.
Impact on Ease of Doing Business
This move towards decriminalization aligns with India’s goal to improve its position in the World Bank’s Ease of Doing Business Index. The perception that India had overly harsh corporate laws had discouraged foreign investors and entrepreneurs. By reducing the compliance burden, removing criminality from routine errors, and introducing a rational penalty system, the 2020 Amendment sought to create a more business-friendly environment. This also complemented other initiatives such as the introduction of the faceless assessment under the Income Tax regime and digitization of compliance procedures.
Rationalization of Penalties
The Amendment also sought to ensure that penalties imposed for default were commensurate with the gravity of the offence. The penalty structure was made less harsh for smaller companies, start-ups, and producer companies. Section 446B, for instance, was amended to provide lesser penalties for One Person Companies and small companies. It now ensures that such companies are liable to pay only up to 50% of the penalty prescribed under the relevant section. This differentiated approach acknowledges the resource constraints of small businesses and encourages entrepreneurship without compromising the need for compliance.
Removal of Imprisonment in Certain Cases
Another important measure under the Companies (Amendment) Act, 2020 was the removal of imprisonment as a punishment in various sections. The Act replaced imprisonment with monetary penalties in more than 30 provisions. This was consistent with the recommendations of the Company Law Committee (CLC) constituted by the Ministry of Corporate Affairs in 2019. The CLC, in its report, emphasized that criminal liability should be retained only for serious offences involving an element of fraud or harm to the public interest. Procedural and technical lapses, which are often inadvertent, should be dealt with through civil penalties. Some examples of sections where imprisonment was removed include Section 92 (annual return), Section 117 (filing of resolutions), and Section 134 (signing of financial statements).
Strengthening of In-House Adjudication Mechanism
To effectively implement the decriminalization measures, the Amendment also strengthened the in-house adjudication mechanism under Section 454 of the Companies Act. The system of adjudicating officers, appointed by the Ministry of Corporate Affairs, was empowered to levy penalties for defaults and to pass reasoned orders. Appeals against the orders of the adjudicating officers would lie before the Regional Director, ensuring a fair mechanism for redressal. The adjudication system was designed to be time-bound and efficient, avoiding the delays typically associated with litigation in courts and tribunals.
Corporate Social Responsibility (CSR) Amendments
The Companies (Amendment) Act, 2020 brought significant changes to the Corporate Social Responsibility provisions under Section 135 of the Companies Act, 2013. These changes were aimed at removing ambiguities, strengthening compliance, and encouraging effective implementation of CSR initiatives. First, the Amendment clarified that companies which had spent an amount over the required CSR obligation in a financial year may set off such excess amount against the requirement of CSR spending in succeeding financial years, subject to certain conditions. This provision was especially beneficial for companies with long-term projects and those who had proactively contributed beyond the statutory requirement. Second, the Amendment introduced a mandatory obligation for companies to transfer unspent CSR funds to a fund specified in Schedule VII of the Act within six months of the end of the financial year, if the funds were not allocated to any ongoing project. In the case of ongoing projects, the unspent amount is required to be transferred to a special account within 30 days and spent within three years, failing which it must be transferred to a specified fund. Non-compliance attracts penal consequences.
Exemption for Certain Companies from CSR Requirements
The Amendment also exempted certain categories of companies from the requirement to constitute a CSR Committee. Companies with a CSR obligation of less than fifty lakh rupees in a financial year are not required to constitute a CSR Committee, and the Board of Directors can discharge the functions of the committee. This relaxation helped reduce the compliance burden on smaller companies, while ensuring that CSR funds were still effectively spent.
Introduction of Producer Companies
The Amendment reintroduced provisions relating to Producer Companies under the Companies Act, 2013, by inserting a new Chapter XXIA (Sections 378A to 378ZU). Producer Companies are typically formed by farmers and agricultural producers to enable them to pool resources, increase bargaining power, and improve market access. Earlier, these provisions were part of the Companies Act, 1956, but were not included in the 2013 Act. With the Amendment, Producer Companies once again had a statutory recognition. The provisions provide for the incorporation, management, and functioning of Producer Companies. They include norms for membership, voting rights, share capital, appointment of directors, general meetings, and distribution of surplus. The reintroduction of these provisions was aimed at empowering the agricultural and rural sectors, promoting inclusive growth, and formalizing the operations of collective producer enterprises.
Introduction of Benches of National Company Law Appellate Tribunal (NCLAT)
The Companies (Amendment) Act, 2020 also amended Section 410 of the Companies Act to allow for the setting up of multiple benches of the National Company Law Appellate Tribunal (NCLAT). Earlier, NCLAT had only one principal bench located in Delhi. This created logistical challenges for litigants from other parts of India. By enabling the establishment of regional benches, the Amendment aimed to ensure greater accessibility to justice and faster disposal of appeals arising from orders of the National Company Law Tribunal (NCLT) and the Insolvency and Bankruptcy Board of India (IBBI).
Enhanced Powers for Registrar to Remove Names of Companies
Section 248 of the Companies Act, which deals with the removal of the name of a company from the register of companies, was amended to empower the Registrar of Companies (RoC) to remove the name of a company if the subscribers to the memorandum had not paid the subscription money within 180 days of incorporation, and if the company had not commenced business within one year. This was intended to curb the proliferation of shell companies and companies created only to hold licenses or registrations without commencing genuine business operations.
Amendment Relating to Remuneration of Independent Directors
Section 149 of the Companies Act was amended to clarify that in the event of no profits or inadequate profits, non-executive directors, including independent directors, may receive remuneration by Schedule V of the Act. This amendment addressed ambiguities about the entitlement of independent directors to receive remuneration in case of loss-making companies. It was also intended to attract qualified professionals to take up board positions without the fear of financial loss due to company performance.
Filing of Resolution and Agreements
Section 117 was amended to exclude banking companies from the requirement of filing board resolutions with the Registrar that relate to granting loans, giving guarantees, or providing securities. This exemption recognized the operational exigencies of banks and aimed to ensure that they could conduct routine business without unnecessary delays due to procedural filings.
Impact on CSR Provisions
The Companies (Amendment) Act, 2020 brought several important changes to the provisions related to Corporate Social Responsibility (CSR) under Section 135 of the Companies Act, 2013. These changes were aimed at improving compliance and enabling companies to meet their CSR obligations more effectively. One of the most significant changes was the decriminalization of certain CSR-related offences. Previously, non-compliance with CSR provisions could lead to penal consequences, including fines and imprisonment. The amendment replaced these harsh penalties with civil liabilities, thus making the compliance process less stringent and more business-friendly. The amendment also granted exemptions to certain classes of companies from constituting a CSR Committee. Specifically, companies that are required to spend less than fifty lakh rupees per financial year on CSR activities are now exempt from forming a CSR Committee, making compliance easier for smaller companies. Furthermore, the amendment provided for the carry forward of unspent CSR amounts. If the unspent CSR amount is not related to an ongoing project, it must be transferred to a Fund specified in Schedule VII within six months from the end of the financial year. If it relates to an ongoing project, it must be transferred to a special account within thirty days and spent within three financial years, failing which it must be transferred to a Fund specified in Schedule VII. This provision ensures that companies remain accountable for their CSR obligations. Another notable change was the introduction of a new provision allowing companies to undertake CSR activities through a company established under Section 8, or through a registered trust or society, provided they have a track record of at least three years. This aims to ensure that CSR activities are undertaken by credible entities with experience in the field. Overall, these changes were intended to simplify CSR compliance, promote flexibility, and enhance the impact of CSR activities carried out by companies.
Decriminalization and Rationalization of Penalties
The Companies (Amendment) Act, 2020 took a major step toward decriminalizing certain offences under the Companies Act, 2013. The goal was to promote ease of doing business and reduce the burden of litigation on companies and courts. The amendment reclassified certain compoundable offences as civil wrongs and introduced in-house adjudication mechanisms, allowing regulators to impose penalties rather than initiating criminal proceedings. The decriminalization effort was focused primarily on procedural and technical defaults that do not involve fraud or harm to public interest. For instance, defaults relating to the delay in filing annual returns or financial statements, delay in convening board meetings, or non-maintenance of statutory registers are now treated as civil liabilities. This shift represents a more pragmatic approach, recognizing that not all non-compliances are criminal. The amendment categorized offences into three groups: (1) offences that will now attract only a monetary penalty, (2) offences that will be dealt with through an in-house adjudication mechanism, and (3) offences that continue to be treated as criminal offences due to their serious nature, such as fraud or misleading statements in prospectuses. Additionally, the quantum of penalties was rationalized. In many cases, the penalties have been reduced, especially for one-person companies and small companies. This acknowledges their limited resources and attempts to support them in achieving better compliance without fear of severe financial repercussions. Moreover, in-house adjudication of penalties has been entrusted to the Registrars of Companies (RoCs), which helps reduce the load on the judicial system and accelerates the resolution of disputes. Overall, the decriminalization measures of the Amendment Act aim to strike a balance between enforcement and facilitation, making the regulatory framework less adversarial and more conducive to growth and compliance.
Producer Companies and Their Reintroduction
The Companies (Amendment) Act, 2020 reintroduced provisions relating to producer companies by inserting a new Chapter XXIA into the Companies Act, 2013. This move was significant as it revived the concept of producer companies, which had earlier existed under the Companies Act, 1956 but was not incorporated into the 2013 Act. A producer company is essentially a company formed by farmers, producers, or other persons engaged in agriculture, horticulture, forestry, handlooms, or similar activities. The primary aim of these entities is to improve the income and welfare of producers by leveraging economies of scale, enhancing market access, and fostering better management. The newly inserted Chapter XXIA (Sections 378A to 378ZU) governs the incorporation, management, and operation of producer companies. These provisions mirror the earlier structure under the 1956 Act but have been updated for better integration with the 2013 Act. The provisions clarify who can form a producer company, the number of members required, the governance structure, and the conditions for converting an inter-state co-operative society into a producer company. Key highlights include detailed norms for membership, share capital, board composition, voting rights, general meetings, and dividend distribution. The reintroduction of these provisions is a welcome step for the rural and agricultural sectors. It allows for the formal recognition and regulation of producer companies under modern corporate law, enabling them to raise funds, access institutional support, and grow sustainably. Moreover, it helps bridge the gap between the cooperative model and the corporate structure, giving producers the benefits of both democratic decision-making and professional management.
Remuneration to Non-Executive Directors in Case of Inadequate Profits
The Companies (Amendment) Act, 2020 also addressed issues related to the remuneration of directors, particularly non-executive directors, in case of inadequate profits. Before the amendment, only managing directors, whole-time directors, and managers could receive remuneration in case of no or inadequate profits, subject to the limits and conditions specified in Schedule V of the Companies Act, 2013. Non-executive directors were not explicitly covered. The amendment clarified that non-executive directors, including independent directors, can also be paid remuneration in such cases, provided the company complies with the conditions laid out in Schedule V. This change promotes fairness and ensures that non-executive directors are appropriately compensated for their services, even if the company is not making adequate profits. This amendment recognizes the crucial role played by non-executive directors, especially independent directors, in corporate governance, strategy, and oversight. Their contributions are vital for maintaining transparency, accountability, and shareholder trust. By allowing companies to remunerate these directors even during challenging financial periods, the amendment helps attract and retain qualified professionals to board positions.
Exemptions for Listed and Public Companies
The Companies (Amendment) Act, 2020 also provided certain exemptions and relaxations to listed companies and public companies, aligning with the broader objective of promoting ease of doing business. The definition of a listed company was amended to allow for exclusions as may be prescribed by the Central Government in consultation with the Securities and Exchange Board of India (SEBI). This enables the government to exempt certain classes of companies from being treated as listed companies under the Companies Act, even though they may have listed their debt securities. The rationale behind this amendment is that companies that are not equity-listed but have only listed non-convertible debentures (NCDs) should not be burdened with the same compliance requirements as equity-listed companies. This move acknowledges the lower risk profile and limited investor base of such companies and reduces their regulatory burden. Furthermore, the amendment allowed public companies that are required to file a prospectus to file only the prescribed information with the Registrar, instead of the entire prospectus. This simplifies the process of raising capital and reduces compliance requirements, especially for public companies making private placements or rights issues.
Introduction of Benign Compliance Measures
The Companies (Amendment) Act, 2020 introduced several benign compliance measures to ease the regulatory burden on companies and improve the ease of doing business. These include relaxation of penalties for startups, small companies, one-person companies, and producer companies. For such entities, the maximum penalties for several defaults were reduced to half the standard amount or capped at specific limits. This change acknowledges their limited financial and administrative capacities and seeks to encourage voluntary compliance. The amendment also enabled the central government to exempt certain classes of companies from specific compliance requirements. For example, it can exempt private companies or government companies from the provisions relating to meetings, board composition, or audit committees, depending on the circumstances. These exemptions are intended to provide flexibility to companies based on their size, ownership, and operations. The amendment allowed companies to maintain their registers and records in electronic form, wherever applicable. This modernization aligns with digital transformation initiatives and facilitates easier access and management of records. Furthermore, it also allowed companies to hold general meetings through video conferencing or other audio-visual means, subject to prescribed conditions. This provision is especially relevant in the post-pandemic era, where virtual meetings have become common. These benign compliance measures signal a shift in regulatory philosophy from enforcement to facilitation. They focus on building a culture of compliance through support and rationalization, rather than through penal action.
Reforms Related to Independent Directors
The Companies (Amendment) Act, 2020 brought in reforms to improve the regulatory framework for independent directors. One of the key changes was the requirement for the inclusion of the name of the person proposed to be appointed as an independent director in the databank maintained by the Indian Institute of Corporate Affairs (IICA). This databank is designed to maintain a list of individuals eligible and qualified to be appointed as independent directors. The amendment clarified that companies must ensure that the proposed independent director is included in the databank before their appointment. This move aims to enhance transparency in the appointment process and ensure that only qualified individuals are appointed as independent directors. It also provides a centralized mechanism for evaluating and verifying the credentials of independent directors. Furthermore, the amendment strengthened the training and examination requirements for individuals seeking to be included in the databank. Candidates are required to pass an online proficiency self-assessment test, unless exempted. These measures help improve the competence and accountability of independent directors, thereby strengthening corporate governance.
Decriminalization of Certain Offenses
One of the central aims of the Companies (Amendment) Act, 2020, was to promote ease of doing business by decriminalizing minor, technical, or procedural violations. The Act decriminalized 48 compoundable offenses by shifting them from criminal to civil liabilities. This move was driven by the need to free up the judiciary and the National Company Law Tribunal (NCLT) from handling cases involving minor non-compliances. Under the new regime, instead of prosecution and penalties, in certain cases, companies may now face only monetary penalties imposed by adjudicating officers. Examples of decriminalized offenses include delay in filing annual returns, non-maintenance of registers, and failure to file certain resolutions or agreements. This shift helps avoid prolonged litigation, enhances regulatory efficiency, and encourages corporates to focus on compliance.
Empowering the Central Government for Benign Offenses
The Act empowered the Central Government to exempt certain classes of companies from the application of specific provisions. This authority allows the government to offer leniency in cases of procedural non-compliance or errors not involving mala fide intent. Through this, the government aims to facilitate smoother functioning for small and medium enterprises (SMEs) and startups, providing them with a more flexible compliance framework. Additionally, the establishment of an in-house adjudication mechanism (IAM) ensures faster resolution of defaults and reduces the burden on courts.
Producer Companies Reintroduced
The Companies (Amendment) Act, 2020 reintroduced the concept of producer companies by inserting a new Chapter XXIA in the Companies Act, 2013. The earlier provisions related to producer companies were governed under the Companies Act, 1956. Their omission in the Companies Act, 2013 had led to confusion and legal gaps. Producer companies are typically organizations formed by farmers, producers, or agriculturists to promote their economic interests through mutual assistance and cooperative structures. The reintroduction of legal provisions for such entities aims to encourage cooperative business models in agriculture and rural sectors and ensure they operate with clarity and legal backing.
Increased Focus on Corporate Social Responsibility (CSR)
The amendment brought clarity to provisions related to CSR and modified the penal structure for non-compliance. Under the Companies (Amendment) Act, 2019, CSR violations were initially treated as criminal offenses. The 2020 Amendment softened this approach by converting non-compliance with CSR provisions into civil liabilities. Companies are now allowed to carry forward unspent CSR amounts to subsequent financial years, especially when the expenditure relates to ongoing projects. This encourages long-term planning and execution of CSR initiatives. Additionally, the government introduced mechanisms for monitoring CSR compliance more effectively through designated officers and portals. These changes aim to ensure that CSR obligations are taken seriously without being overly punitive.
Enhanced Role for Startups and Small Companies
In line with the government’s mission of Startup India and Make in India, the amendment introduced several measures benefiting startups and small companies. By easing compliance norms and decriminalizing various offenses, the Act made it easier for such businesses to function. The amendment also increased the threshold for paid-up capital and turnover to classify as a small company. This broadens the scope of entities eligible for regulatory relaxations, including simplified filing requirements, fewer board meetings, and exemption from the appointment of auditors in certain cases. These initiatives are aligned with the vision of creating a conducive environment for innovation, entrepreneurship, and job creation.
Conclusion
The Companies (Amendment) Act, 2020 marks a significant step in India’s ongoing journey toward corporate reform and ease of doing business. With its focus on decriminalizing minor offenses, empowering the executive with appropriate oversight, improving CSR compliance, and supporting producer and small companies, the Act reflects a pragmatic and business-friendly approach. The legislative changes seek to strike a balance between promoting compliance and removing unnecessary penal provisions that hinder growth. As India aims to attract greater foreign investment and promote indigenous entrepreneurship, the Companies (Amendment) Act, 2020 lays down the groundwork for a more efficient, transparent, and accountable corporate governance structure.