COMPANIES AMENDMENT BILL, 2020
Companies Amendment Bill, 2020 (the “Bill”) was introduced in Lok Sabha to amend the
Companies Act 2013 (the “Act”) and to decriminalise various offences under the Act. The
Bill was proposed to help in doing ethical and honest business in India. Further, the Bill
aimed at improving ease of business.
The Bill was proposed in accordance with the recommendations given by Committee set
up by Ministry of Corporate Affairs (“MCA”). The recommendations given by the
Committee was in pursuance and continuation of the policy of the Government of India
to decriminalise non-compliance of minor, technical, or procedural nature and facilitate
and promote ease of doing and ease of living for law abiding companies.
The analysis has been prepared in various parts covering provisions for decriminalising
offences and ease of doing business. This part is being prepared to cover the few proposed
amendments which promote ease of doing business only.
Change in the definition of Listed Company (Section 2(52))
As per Section 2(52) of the Act, "listed company" means a company which has any of
its securities listed on any recognised stock exchange. ‘Securities’, as defined under the
Securities Contract (Regulation) Act, 1956 (“SCRA”), includes “shares, scrips, stocks,
bonds, debentures, debenture stock or other marketable securities of a like nature in or of
any incorporated company or other body corporate.” Thus, any company whose shares,
stocks, bonds, debentures etc. are listed on a stock exchange would qualify as a listed
company under the 2013 Act.
It is the general notion perceived by many corporates that only public company can list its
securities. The private placement under the Act read with the SEBI (Issue and Listing of
Debt Securities) Regulations, 2008 indicate that not merely public companies, but even
certain private companies, are permitted to list debt securities on a recognised stock
exchange. Therefore, if a private company lists debt securities such as non-convertible
debentures, bonds etc. (offered on a private placement basis) on any recognised stock
exchange after duly complying with the necessary formalities, such a company would fall
under the definition of a ‘listed company’ under the 2013 Act.
And, consequently it increases the compliance burden of the Private Company which have
its only NCDs listed on the recognised stock exchange as it comes under the obligation to
comply with the provisions of “Listed Company” as per the Act such as Appointment of
Independent Director, Implementation of Vigil Mechanism, Formation of Nomination
and Remuneration Committee, Secretarial Audit, Appointment of Women Director etc.
This additional compliance burden discourage the private companies to list its NCDs on
the stock exchange.
The Bill has proposed to insert a new proviso for warranting the Central
Government to notify such class of companies which have listed or intend to list such class of securities, as prescribed by SEBI, shall not be considered as “Listed
Company”.
The logic behind the aforesaid insertion of proviso is to exclude those companies which
have their NCDs listed on recognised stock exchange from the ambit of “Listed
Company”. This amendment will encourage the private companies or start-ups for raising
funds by Listed NCDs with exemption from few compliance requirements which will
promote ease of doing business. From the Lender’s point of view, this may prove harmful
as lapse of corporate governance will obscure the transparent picture of Investee Company.
However, public companies offering non-convertible debt securities through this route
must continue to be treated as ‘listed companies’ as per Section 2(52) of the 2013 Act..
Change in “Rectification of name of Company” (Section 16)
This provision provides punishment if a company fails to change its name despite an order
given by the RD to this effect (Common Name Registered or Similar Name with already
Registered Trademark).
The Bill has proposed to shorten the time limit of compliance of direction given by the
Central Government (Regional Director) to change the company name from six months
to three months.
Further, the bill has removed the punishment for failure to comply with the directions of
the Central Government. The Bill has proposed that on non-compliance with the order of
the Central Government (CG), the CG shall assigned an auto-generated neutral name that
it would have to use until it changes its name.
In layman’s language, provision of Section 16 shall be construed as "that in case the company
fails to abide by the order of the CG under Section 16(1) within 3 months of passing of such order, an
auto-generated name would be assigned to the company. The Registrar shall issue a fresh certificate of
incorporation and the company shall be bound to use such name, until it changes its name through due
process as per the provisions of the Act.”
Additional Provisions in “Public Offer and Private Placement” (Section 23)
The Bill has proposed to insert additional provisions in Section 23. The Bill has proposed
to insert a new provision Section 23(3) for warranting the Central Government to notify
such class of companies to issue such class of securities for the purpose of listing on
permitted stock exchange in permissible foreign jurisdictions. Further, it entrusted the
Central Government to exempt any class or classes of public companies referred herein in
Section 23(3) of the Act from any of the provisions of Chapter III, Chapter IV, section 89,
section 90 or section 127 of the Act via notification which is required to be laid before the
both Houses of Parliament.
Currently, Indian Companies are entitled to list its securities in India or list its Depository
Receipts outside India. The rationale behind proposing aforesaid is in aiding the listing of
Indian companies on stock exchanges in foreign jurisdictions without following listing
requirements of India. The listing of Indian companies in foreign stock exchanges is
expected to improve the competitiveness of Indian companies in terms of access to capital,
wider investor base, recognition of Indian companies in foreign countries and escalated
valuations.
Reduction in timeline for Rights Issue (Section 62)
A rights issue is an option exercisable by existing shareholders of a company to purchase
further share capital in proportion to their current holding, which is exercisable for a
specified period. Companies typically pursue rights issue as an avenue to raise funds for
various reasons, ranging from expansion or acquisitions to paying down debts. Section 62
of the Act, governs this process and, provides that the offer shall be made by notice
specifying the number of shares offered and limiting a time not being less than fifteen days
and not exceeding thirty days from the date of the offer. However for private companies,
if 90% of the members consents for lesser period, the lesser period will apply.
The Bill has empowered the Central Government to prescribe a shorter time period than
the mandatory 15 days’ time period provided in this provision.
As per the market practice, the rights issue offer for unlisted companies is completed in
around 3-4 days and allotment is completed within 4-5 days. In light of keeping the Act in
accordance with the market practice, the aforesaid provision is inserted to empower the
CG to reduce the period of 15 days.
Change in “Declaration in Respect of Beneficial Interest in any Share”
(Section 89)
Section 89(1) - (3) of the 2013 Act lays down obligations on a registered owner and a
beneficial owner of shares of a company to make disclosures as per the prescribed form.
If the said person fails to make such a disclosure, he/she is subject to the criminal
punishment under Section 89(5) and cannot enforce any of his/her rights in relation to
such shares.
Since the beneficial owner, anyway, loses his/her right of enforcement in relation to such
shares in such cases, the Bill has limited the penalty imposed in Section 89(5).
Further, the bill has inserted additional provisions for empower the Central Government
to exempt any class or classes of persons from complying with any of the requirements of
this section, except sub-section (10), if it is considered necessary to grant such exemption
in the public interest and any such exemption may be granted either unconditionally or
subject to such conditions by the notification
ABOUT THE AUTHOR
SHIVAM GERA
Dynamic and passionate professional with
progressive experience in advising on issues in
corporate laws, managing implications in
transactions, estate planning, drafting commercial
agreements and investment banking. Being Career
oriented, the author has completed his graduation in
commerce from Satyawati College, University of
Delhi and Qualified Company Secretary.
Contact: +91-8130562651
Email: shivamgera12345@gmail.com
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