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Focus: GS-III Indian Economy, GS-II Governance

Why in news?

  • On 4th March, the Union Cabinet approved the proposal to amend 65 sections of the Companies Act, in a bid to decriminalise a number of offences and ease corporate social responsibility (CSR) requirements, especially for smaller companies.
  • The amendment bill will also enable the listing of Indian companies on stock exchanges in foreign jurisdictions.
  • This is expected to give Indian firms greater access to capital, a broader investor base and better valuations.
  • The Centre proposes to recategorise 23 offences so that they can be dealt with through an in-house adjudication framework, while five types of offences will be dealt with under different alternative frameworks.

Significance of these changes

The changes are expected to significantly enhance the confidence of Indian corporates in the government’s resolve to provide greater ease [of doing business] and accord highest respect to honest wealth creators in the country and reduce the burden on the justice system.

Companies Act 2013

  • The Companies Act 2013 is an Act of the Parliament of India on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company.
  • The Act has replaced The Companies Act, 1956 (in a partial manner) after receiving the assent of the President of India on 29 August 2013.
  • Article 135 of the Companies Act introduces mandatory CSR contributions for large companies, making it the only mandatory CSR law in the world.

Changes brought by the Amendment Bill

  • The bill aims to ensure greater accountability and a better enforcement of the corporate governance norms.
  • A key change in the Bill is related to CSR spending, wherein companies would have to mandatorily keep unspent money into a special account.
  • The companies will have one year to firm up the CSR proposal and another three years to spend funds. In case money remains unspent for one plus three years, the money will have to be moved to an escrow account, could even be the Prime Minister’s Relief Fund.
  • In order to curb the menace of shell companies, the Bill proposes making non-maintenance of registered office and non-reporting of commencement of business grounds for striking off the name of the company from the register of companies.
  • The Bill seeks to empower the Registrar of Companies to initiate action for the removal of the name of a company from the Register of Companies if it is not carrying on any business or operation in accordance with the Company Law.
  • The legislation envisages a re-categorisation of 16 minor offences as purely civil defaults.
  • It also provides for transferring of functions with regard to dealing with applications for change of financial year to Central government and shifting of powers for conversion from public to private companies from NCLT to the central government.
  • The bill provided more clarity with respect to certain powers of the National Financial Reporting Authority (NFRA).

June 2024