Big step for Indian companies! Modi government to bring Ordinance to amend companies law

Addressing a press conference on Sunday, Finance Minister Nirmala Sitharaman said companies can list their securities directly in foreign jurisdictions and described it as "one big step for Indian companies". The government will promulgate an Ordinance to amend the companies law to decriminalise various provisions, permit direct overseas listing for Indian corporates and changes to further improve the ease of doing business, as per a report by news agency PTI.

A Bill to amend the Companies Act, 2013 is pending before Parliament. The Act is implemented by the corporate affairs ministry.

Announcing measures under the fifth and final tranche of the Rs 20-lakh crore stimulus package for the economy hit hard by the coronavirus pandemic, the minister also said an Ordinance would be promulgated to amend the Act.

Sitharaman, who is also the corporate affairs minister, said violations involving minor technical and procedural defaults, including shortcoming in CSR reporting, inadequacies in board report, filing defaults and delay in holding AGM, would be decriminalised.

Majority of the compoundable offences sections would be shifted to internal adjudication mechanism. Besides, powers of a regional director for compounding various offences would be enhanced.

As many as 58 Sections under the Act would be dealt with under the mechanism compared to 18 earlier. 
Also, seven compoundable offences would be dropped altogether and five would be dealt under the alternative framework.

According to the minister, the amendments would de-clog criminal courts and the National Company Law Tribunal (NCLT).

Generally, compoundable offences are those that can be settled by paying certain amount of money.

In March, the Union Cabinet approved 72 changes to the companies law with focus on decriminalisation of various provisions and permitting direct overseas listing of Indian corporates.

Reduction in penalties for certain offences as well as in timeline for rights issues, relaxation in CSR compliance requirements and creation of separate benches at the National Company Law Appellate Tribunal (NCLAT) were among the raft of other proposed changes in the Companies Act, 2013.

As many as 72 changes resulting in amendments to 65 Sections of the Act were approved at that time to ensure greater ease of doing business as well as living.

These changes are part of the amendment Bill pending before Parliament.

To improve the ease of doing business, the minister said Indian companies would be allowed direct listing of their securities in permissible foreign jurisdictions, and private companies that list their non-convertible debentures (NCDs) on stock exchanges would not be regarded as listed companies.

Other proposed measures include creation of additional or specialised benches for NCLAT (National Company Law Appellate Tribunal) and lower penalties for all defaults for small companies, one person companies, producer companies and start-ups.

Direct listing of shares of listed and unlisted public companies abroad would be allowed. 

Amendment would be carried in Section 23 of the Act for including an enabling provision to allow direct listing of securities by Indian public companies in permissible foreign jurisdictions. This would provide alternative source of capital for domestic companies and also broaden their investor base.

Currently, quite a few Indian companies have American Depository Receipts (ADRs) that are traded in the US. Some other corporates have their Global Depository Receipts (GDRs).

A depository receipt is a foreign currency-denominated instrument, listed on an international exchange, issued by a foreign depository to a domestic custodian and includes GDRs.

Listing of Indian companies in foreign stock exchanges is expected to increase the competitiveness of Indian companies in terms of access to capital, broader investor base and better valuations, the corporate affairs ministry had said on March 4.

Under the Act, public companies should have at least seven shareholders and have no restriction on transferability of their shares, among other criteria.

Among others, the government had proposed permitting eligible companies to claim credit for CSR spend in excess of the 2 per cent obligation in a particular year against its obligation for the subsequent financial years.

Further, companies with CSR obligation to spend Rs 50 lakh or less will not be required to constitute a committee in this regard.

Under the Act, certain class of profitable companies are required to shell out at least 2 per cent of their three-year annual average net profit towards CSR (Corporate Social Responsibility) activities.

Other changes that were proposed include those pertaining to providing adequate remuneration to non-executive directors in case of company having inadequate profit and relaxation in certain compliance requirements for corporates operating in IFSC Gift City, Gujarat.