The Rajya Sabha on Tuesday, July 30, passed the Companies (Amendment ) Bill 2019, which seeks to amend the Companies Act 2013. The bill was given the nod by the Lok Sabha with a majority of votes on July 26.
The bill was strongly opposed by the opposition claiming that the government is trying to enact the law in haste.
Government Justifies Bill
Nirmala Sitharaman said that the bill aims to ensure more accountability and better enforcement to strengthen the corporate governance norms and compliance management in the corporate sector”.
“We are trying to bring in ease of doing business, bring in a robust framework through which the Companies Act can be implemented. We are also trying to rationalise, and re-categorise minor offences for civil defaults,” Finance Minister Nirmala Sitharaman said in the Upper House.
Sitharaman said that the amended bill would de-clog the National Company Law Tribunal by taking away the matters which were under its purview.
To regulate shell companies, the minister informed that it had been made compulsory to have a physical address and register to ensure such companies exist on the ground.
“Four lakh companies have been identified and de-registered,” she said.
Companies will now have to explain where they have spent the CSR money. We are giving a three years window after which they will have to move the CSR money in an escrow account if they don’t spend it: Smt @nsitharaman
— NSitharamanOffice (@nsitharamanoffc) July 30, 2019
Major Highlights Of The Bill
- Primary focus on CSR spending to encourage companies to keep surplus funds in a separate account for three financial years.
- Companies with a profit of more than Rs 5 crore, turnover of Rs 100 crore and net worth of more than Rs 500 crore are required to shell out at least 2% of their three years annual average net profit towards CSR activities and initiatives.
- Encourages Registrar of Companies (ROC) to take strict action against those companies which do not abide by the law. Registrar is also entitled to disqualify name of the company from the Register of companies in case of any violation of regulations.
- Sixteen minor offences have been re-categorised as civil defaults in the bill. Transfer of functions dealing with applications for change of financial year to Central government is also included in the bill.
- Transfer of powers for shifting from public to private companies from National Company Law Tribunal (NCLT) to the central government has been added.
- A new clause under Section 164 has been added stating that the violation of Section 165(1) shall be a ground for disqualification of a director if he/she breaches the limits of maximum directorship allowed.
Corporate India is worried over mandatory spending on CSR under the new amendments to the Companies Act, which now provides for a three-year jail term if the new CSR norms are not followed.
Opposition Slams Government
Pinaki Misra (Biju Janata Dal) termed the bill as “disastrous”, saying the legislation has been drafted by bureaucrats and the lawmakers have just rubberstamped it.
A Raja (DMK) said the registrar of companies has been given “excessive powers” which is not ideal, to which P P Chaudhury (BJP) said that once the law is amended, it will help in ease of doing business and give a boost to commerce.
Blaming the government for bringing bills to the House without any prior notice, Congress leader Adhir Ranjan Chowdhury said, “If such trends continue, the dignity of the House will be hurt.”
Bill Passed Amid Much Flak
The move of passing the bill was criticised by Netizens. “It is equal to penalising the firm,” said many Twitter users.
Mandatory CSR (India only country to have it. See thread) now taken to new level of batshit crazy. If company doesn’t spend it,government will sequester the money, which is from hard earned profits, in an environment that is not easy to do business in. https://t.co/LZ5l0chpdS
— Rupa Subramanya (@rupasubramanya) July 27, 2019
Economist Rupa Subramanya took to twitter and said, “If a company doesn’t spend it, the government will sequester the money, which is from hard-earned profits, in an environment that is not easy to do business in,” she argued.
One thing you can be sure of in Indian political economy…
One awful decision made by a government will be made worse by its successor…
UPA brought in the idiotic compulsory CSR and NDA now uses it to usher in a new inspector Raj…
— Shekhar Gupta (@ShekharGupta) July 31, 2019
I remember reading really absurd forms of Inspector Raj we have, in @mihirssharma’s book Restart. The mood then was that perhaps we would depart from that era under new govt. Lol. Nirmala just went after CSR money. The worst form of Inspector Raj, as my prev RT says.
— Ramanathan S (@madarassi) July 31, 2019
Other Netizens questioned the government’s move considering businesses are “paying one of the highest taxes in the world under business unfriendly environment”.
Telling companies to compulsorily do CSR or penal provision is different from Income Tax how?
So effectively we have Income Tax + Cess + CSR.
Fabulous
— Ishkaran Singh Bhandari (@Ish_Bhandari) July 30, 2019
