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Key Measures Announced Regarding Companies Act and Insolvency & Bankruptcy Code

The Government of India had already introduced Companies (Amendment) Bill, 2020 to liberalize and decriminalize the strict provisions under the Companies Act, 2013. The said bill was presented with the intent to provide ease of working by taking away number of penal provisions applicable on the Officer in Defaults. Around 14,000 prosecutions under the Companies Act, 2013 have been withdrawn and the second phase of de-criminalization of penal provisions under the law has been initiated. 
In the current scenario, there was a demand of the industry to decriminalize more penal provisions, as criminal prosecutions were viewed very harsh in these circumstances. The Finance Minister, Smt. Nirmala Sitaraman in a press conference held on May 17, 2020 has announced series of measures under the ongoing situation. The Finance Minister has come up with some economic measures which are primarily focused on ease of doing business of companies. The key highlights of the reforms are summarized hereunder.
  1. Decriminalization of violation under the Companies Act, 2013
    Violations involving minor technical and procedural defaults such as shortcomings in Corporate Social Responsibility reporting, inadequacy in Board Report, filing defaults and delay in holding Annual General Meetings will be decriminalized from the Companies Act. From now on, the company shall face only monetary penalties.
  2. Internal Adjudication Mechanism
    The various compoundable offences sections to be shifted to internal adjudication mechanism of the Companies Act, 2013 and enhancing the power of Regional Director for compounding of offences related to the Companies Act.
  3. Direct Listing of Securities
    To ease of doing business, it has decided to direct listing of securities by Indian Public Companies in permissible foreign jurisdictions.
  4. Hikes in Threshold Limit for Default Value Under the Insolvency and Bankruptcy Board of India
    The Minimum threshold limit to initiate the Insolvency proceedings has been proposed to be raised from One lakh to Ten million. It would be one of the major decisions taken by the Government to reduce some burden from shoulders of the National Company Law Tribunal (‘NCLT’).
  5. Suspension of IBC Proceedings
    To deal with testing time arising from deadly virus, it has been decided for suspension of fresh initiation of Insolvency and Bankruptcy Code, 2016 (‘IBC’) up to one year depending upon the pandemic situation.
  6. Exclusion few Debts from the Definition of Default
    COVID-19 related debt would be excluded from the definition of Default under the Insolvency and Bankruptcy Code for the purpose of triggering insolvency proceedings of the Indian Companies.