Cabinet approves an ordinance to alter Companies Act to declog NCLTs

The Union Cabinet on Thursday approved an ordinance to change the Companies Act to declog national company law tribunals (NCLTs) and decriminalise minor offences by companies.

The ordinance will transfer 90 per cent of the cases to regional directors under the Ministry of Corporate Affairs from the NCLTs.

A senior official from the ministry told Business Standard, “The way the Act is being amended, regional directors will be able to look into the cases. With this amendment, 90 per cent company law cases will move from NCLTs to regional directors.”

The status of all non-compoundable offences will be retained since they are serious in nature. The ordinance will come into force after President Ram Nath Kovind gives his assent.

The amendment was thought of after an expert panel to review the Companies Act had recommended that compoundable offences should be dealt with by regional directors, who would be empowered to enhance pecuniary limits. This move was recommended so as to bring down the NCLT’s load. The NCLT looks at insolvency and bankruptcy cases as well.

The committee, set up to amend the Companies Act and headed by Corporate Affairs Secretary Injeti Srinivas, had also explored decriminalising 83 offences compoundable under the Act, including those relating to the directors’ remuneration. The panel suggested that a remuneration any independent director gets from a company should be capped at 20 per cent of his gross income in a year to prevent any material pecuniary relationship, which could impair their independence on the board.

Experts said that high fees by any one company can compromise independent directors’ independence.

These directors are paid in two ways — through sitting fees and commission. While the sitting fee is not a concern, it is commission which raises eyebrows. The commission could range from 1 to 3 per cent of a company’s net profit, depending on whether the company has a managing director, whole-time director or not.

The committee also recommended shifting 16 of 81 compoundable offences from the jurisdiction of special courts to an in-house e-jurisdiction framework, where defaults could be penalised by the adjudicating officer under the registrar of companies.

These offences relate to non-filing of annual returns, not providing permanent account numbers, not providing registered address in the letterhead, not giving director identification number, etc. The remaining 65 offences of serious nature will continue to be under the jurisdiction of special courts due to their potential misuse, the recommendations stated.