Lok Sabha Question No. 2956 (UNSTARRED), answered on 2018-08-03
Subject: Review of Companies Act, 2013
Ministry: CORPORATE AFFAIRS
Asked by: S. RAJENDRAN, ASHOK SHANKARRAO CHAVAN, ADVOCATE NARENDRA KESHAV SAWAIKAR, CH. MALLA REDDY, T. RADHAKRISHNAN, BIDYUT BARAN MAHATO, VIJAY KUMAR S.R., KUNWAR HARIBANSH SINGH, GAJANAN CHANDRAKANT KIRTIKAR, SUDHEER GUPTA

## GOVERNMENT OF INDIA MINISTRY OF CORPORATE AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO. 2956 ANSWERED ON FRIDAY, THE 3rd AUGUST, 2018/ SHRAVANA 12, 1940 (SAKA)

## REVIEW OF COMPANIES ACT, 2013

## QUESTION

2956.  SHRI S. RAJENDRAN:

SHRI ASHOK SHANKARRAO CHAVAN:

ADV. NARENDRA KESHAV SAWAIKAR:

SHRI CH. MALLA REDDY:

SHRI T. RADHAKRISHNAN:

SHRI BIDYUT BARAN MAHATO:

SHRI S.R. VIJAYAKUMAR:

KUNWAR HARIBANSH SINGH:

SHRI GAJANAN KIRTIKAR:

SHRI SUDHEER GUPTA:

Will the Minister of CORPORATE AFFAIRS

## be pleased to state:

- (a) whether the Government has constituted a 10 Member Committee to review the penal provisions in the Companies Act, 2013, if so, the details thereof along with the aims and objectives thereto;
- (b) the terms of reference of the Committee and the time by which the Committee is likely to submit its report to the Government;
- (c) whether  the  move  will  reduce  the  burden  of  trial  courts  in  the country and rather allow them to concentrate on more serious offences and if so, the details thereof;
- (d) whether the Government has evolved an mechanism to check the malpractices  of  listed  companies  in  stock  exchange  and  if  so,  the details thereof; and
- (e) the steps taken/being taken by the Government to ensure strict compliance  of  corporate  governance  of  listed  companies  so  that  to protect the minority stakeholders?

## ANSWER

MINISTER OF STATE FOR LAW AND JUSTICE (SHRI P. P. CHAUDHARY)

कारपोरेट कार्य मंत्री

- (a)  to  (c):-    The  Ministry  of  Corporate  Affairs  regularly  reviews  the provisions  of  the  Companies  Act,  2013  (the  Act)  in  order  to  effectively administer and monitor the implementation of various provisions of the Act.   Accordingly, the Ministry has constituted a 10 member committee to review some of the Penal provisions under the Act vide its order dated 13.07.2018.  The objectives as well as the terms of reference of the said Committee are as follows:-
- (i)  To  examine  the  nature  of  all  'acts'  categorized    as  compoundable offences viz. offences punishable with fine only or punishable with fine or imprisonment or both under the Act and recommend if any of such 'acts' may be re-categorized as 'acts' which attract civil liabilities wherein the company and its 'officers in default' are liable for penalty;
- (ii)  To  review the provisions relating to non-compoundable offences and recommend  whether  any  such  provisions  need  to  be  re-categorized  as compoundable offence;
- (iii)  To  examine  the  existing  mechanism  of  levy  of  penalty  under  the Companies Act, 2013 and suggest any improvements thereon;
- (iv) To lay down  the  broad contours of an in-house adjudicatory mechanism  where  penalty  may  be  levied  in  a  MCA21  system  driven manner so that discretion is minimized;
- (v) To take necessary steps in formulation of draft changes in the law; (vi) Any other matter which may be relevant in this regard.

The move is likely to lessen the burden on Special courts in the country, so that serious offences are more effectively pursued to finality. (d)  and  (e):-    Securities  and  Exchange  Board  of  India  (SEBI)  under  the Department  of  Economic  Affairs  in  the  Ministry  of  Finance  has  stated that:-

- (1).  SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015  ('SEBI  LODR  Regulations'),  inter  alia,  provide  for  monitoring  of listed  entities,  including  compliance  with  the  corporate  governance provisions contained therein and penalty for contravention as under:
- (i)      Regulation  97  (1)  and  (2)  requires  the  exchanges  to  monitor compliance and adequacy/ accuracy of the disclosures made by a listed entity with respect to provisions of the same. Regulation 97 (3) and (4) requires  the  exchanges  to  put  in  place  an  appropriate  framework including adequate manpower and such infrastructure as may be required to monitor compliance of all provisions for all listed entities.
- (ii)      Regulation  98(1)  specifies  that  a  listed  entity  or  any  other  person thereof who contravenes any of the provisions of the regulations, shall, in addition to liability for action in terms of the securities laws, be liable for

action  by  the  respective  stock  exchange(s),  in  the  manner  specified  in circulars or guidelines issued by SEBI. Such action includes: Imposition of  fines,  suspension  of  trading,  freezing  of  promoter/promoter  group shareholding of designated securities, as may be applicable, in coordination with depositories and any other action as may be specified by the Board. (2). Monitoring of compliance by listed entities is a four-stage approach: (i) Monitoring of compliance at the board level of the companies, (ii) External supervisory review such as certifications from practicing company secretaries, (iii) Monitoring of compliance by stock exchanges, and, (iv) Regulatory oversight by SEBI. (3). SEBI vide circulars, the latest being dated May 03, 2018, has also prescribed the Standard Operating Procedure for Stock Exchanges that prescribes  a  uniform  fine  structure  for  non-compliance  with  regard  to certain provisions of SEBI (LODR) Regulations, 2015 specified in Annexure-I  of  the  circular  and  Standard  Operating  Procedure  (SOP)  for suspension and revocation of suspension of trading of specified securities. (4). Stock  Exchanges  have  been  authorized  to  impose  fines  on  the entities  that  are  non-compliant  with  the  requirements  of  the  aforesaid circular and in case the non-compliance persists, Stock Exchanges may freeze  the  promoter  and  promoter  group  shareholding  and  suspend trading of the securities of the concerned  listed  entity after  due intimation  to  the  non-complaint  listed  entity.  The  Stock  Exchanges review compliance status of the listed entities at regular intervals.

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