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Changes in the Company Law : the budgetary push

May 11, 2021
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This article is written by Gurpreet Singh, from the Faculty of Law, Delhi University. The article takes you through the budget 2020-2021, and the amendments proposed in the Companies Act, via Budget.

Introduction 

There are three things we Indians hype up to: Cricket, Bollywood, and the budget! Welcome aboard: this article will deal with the third element, i.e., the budget and the changes it has proposed concerning the company law.

The Budget in a nutshell 

A snapshot 

Taxing proposals in general  

Direct tax exemptions and proposals 

Indirect tax proposals 

  1. Custom duty on copper scrap was levied at 5 percent, now it has been brought down to 2.5 percent. 
  2. Solar inverters just got more expensive with a steep increase of 15 percent on custom duties from 5 percent to 20 percent. 
  3. Custom duty on solar lanterns increased from 5 to 15 percent. 
  4. Customs duty on gold and silver reduced. 
  5. Revised duty on textiles, chemicals, and other products.  

Key sector takeaways

After having a sneak peek at the budget, let’s move on to the amendments proposed in the Companies Act by the budget.

Definition of a small company

Before Amendments 

After Proposed Amendments 

  • A Small Company refers to a company  specifically excluding public companies which meet the following requirements 
  1. Paid-up share capital does not exceed the amount of Rs Fifty lakh 
  2. The previous year turnover does not exceed the amount of Rs 2 crore 
  • A Small Company refers to a company specifically excluding Public companies which meet the following requirements 
  1. Paid-up share capital does not exceed Rs 2 crore 
  2. The previous year turnover does not exceed the amount of Rs 20 crore  

One Person Company 

Before Amendments

After Proposed  Amendments 

  • Only a person who is a resident of India was permitted to operate a one-person company 
  • A resident of India refers  to the person who has stayed in India for 182 days in the preceding year 
  • One person company which had paid-up share capital of  more than 50 lakh  rupees and turnover over 2 crore rupees for 3 preceding years was permitted to convert the company into a private or a public company 
  • Operation of one person company thrown open to Non-Resident Indian as well 
  • A resident of India now refers to a person who has stayed in India for 120 days in the preceding year 
  • The requirements of paid-up share capital and turnover for conversion has been relaxed 

Other significant changes 

  1. Relaxations for Start Up’s – An amendment to the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016. has been made to allow 2 or more startup companies or a startup company and a small company to enter into voluntary mergers or amalgamations.
  2. The Amalgamation of Securities  Acts into a single code – “To ease the compliance structure, The  Government has proposed to amalgamate 4 securities Act including SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007  into a single code”. 
  3. Decriminalizing the Limited Liability (LLP) Act, 2008 – The Government has proposed to decriminalize the technical and procedural compoundable offenses m listed under the LLP Act, 2008 in lines with the decriminalization process undertaken under the Companies Act. 
  4. National Company Law Tribunal (NCLT) framework – “The Government aims at stretching the already existing debt recovery mechanisms by focussing on online settlements and alternative methods of dispute resolution. The government has also proposed to pay heed to the special demands of MSMEs”.
  5. MCA21 portal Upgradation – “MCA is a portal managed by the Ministry of Corporate Affairs that provides various services to limited liability partnerships and companies.  The Government has proposed to upgrade the portal by employing data analysis, machine learning to ease the process of e-compliance and adjudication”.

Proposed Changes  in the Finance Bill, 2021 

    1. Amendments to the Indian Stamp Act, 1881 – A new section 8G is being added to the Indian Stamp duty Act, 1881 to exempt the government companies from paying stamp duty on the instruments for the transfer of a business or any asset or any right in the immovable property from one government company to another or the central or state government by disinvestment. The proposed changes are in line with the governmental policy of disinvestment enunciated in the Budget. 
    2. Changes in the Contingency Fund of India – As the name suggests the contingency fund was enunciated in the Constitution to deal with any emergencies. With “Covid-19” straining the budgets of many economies, Govt has proposed to increase the contribution from 500 crores to 30,000 crores in the contingency fund 
    3. Changes in The Sebi Act, 1992 – The Finance Bill, 2021 intends to make it compulsory for a person to obtain a certificate who intends to act as a sponsor or causes to manage an alternative investment fund or business fund as defined under clause 13A of Section 2 of the Income Tax Act, 1961.
    4. Amendments to Life Insurance Company Act, 1956 – Amendments are proposed to be carried out in the LIC Act, 1956 to ease the process of disinvestment proposed in the budget.

Conclusion 

First addressing the concerns about the budget. The “Covid-19″ pandemic hit the poor at a level that my words cannot do justice to their experiences. Many were forced to crawl their way back 1000-1500 km on foot with no transportation being made available to them  Many died on trains due to extended travel periods, some were trampled while they were sleeping on the railway tracks. The Budget was a golden opportunity for the government to allay the concerns and fears of the people.

With 19 million job losses, savings taking a hit, and breathing in an atmosphere of death and despair, people were hoping for welfare spending by the government but that was too much to expect from “Aatmnirbhar Bharat” .. Himansh an associate professor of economics at Jawaharlal Nehru University further supports my line argument in better words due to his expertise: “Cutting back on welfare spending at a time when labor markets are in distress and the poor are still dealing with the loss of incomes and livelihoods, and more importantly a wage squeeze due to the pandemic, will only worsen the demand problem in the economy”.He further added: “There is enough evidence to show that the sequential recovery in the economy was driven by profits, even as employment and wages took a hit. A reduction in welfare spending will increase the burden on the poor and erode their bargaining power in the economy, which will generate headwinds for rural demand going forward”. 

Secondly, addressing the changes made in the Companies Act, prima facie the changes proposed in the act were much required to create a congenial environment for businesses to operate, relaxing the cumbersome procedures in the administration pushes the industry towards a new level of optimism, but certain lawyers and leaders in the industry believe that the one person company and startup reforms pushed by the government wouldn’t decrease compliance costs on the ground and startups would prefer to incorporate their companies abroad and then carry on business from there. Let us hope it turns out to be false. 

References


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