Restructuring Corporate Offenses: Government Appointed Panel Suggests in-house adjudication system

[Legal Raasta]

Special Courts and their Plight

Special Courts are up to their necks deep in corporate fraud cases with serious offenses. In this mess of serious offenses, many routine procedural errors and lapses are piling onto the pending cases and cluttering the justice system for corporates. In a pursuit, to "de-clog" the system, a 10-man government-appointed committee chaired by Mr. Injeti Srinivas are looking to bring about radical changes by restructuring corporate offenses. This attempt also comes as part of larger efforts by the government to enhance the Ease of Doing Business and improving ROC compliances. The Ministry of Corporate Affairs has also made brilliant strides to promote faster company registration procedures with One-Day Company Incorporation with SPICe.One outstanding and radical change the panel suggests is the appointment of an in-house adjudication system to facilitate freeing up the workload on the special courts.

Restructuring Corporate Justice

It is clear that the special courts need a helping hand of support if they are to deliver justice for wrongdoings by fraudulent individuals. A vast array of changes and restructuring of the system might come as a sigh of huge relief to the judicial system.

Let's break down the changes to system suggested by the committee.

Serious offenses categorized into six different classes are to remain under the rigors of the law. However, the panel recommends that procedural and technical lapses falling under two classes should be shifted under the jurisdiction of an in-house adjudication system. This move is directly aimed at reducing the number of prosecutions filed with the Special Courts.

A move to simplify the resolution of minor technical and procedural offenses has been settled pretty well by suggestions of the committee. Apart from this the committee also stresses that they wish to simplify compoundable offenses as well. Suggestions from the panel request for the following changes:

• 16 out of 81 compoundable offenses to be re-categorized
• Shifting the jurisdiction of said 16 offenses from Special Courts to an in-house adjudication system
• Compoundable Offences Jurisdiction shifted from Special Courts to 'in-house E-adjudication framework wherein defaults would be subject to levy of penalty by the authorized adjudicating officer (Registrar of Companies)"
• Remaining 65 offenses to stay under Jurisdiction of Special Courts to prevent potential misuse.
• Status Quo for non-compoundable offenses which are in relation with serious violations
• Instituting a transparent Online Platform for E-adjudication and E-publication of orders
• The cross-cutting liability under section 447, which deals with corporate fraud would continue to apply wherever fraud is found.

Governance Simplification

The government-appointed panel was set up in July of 2018 to review and possibly restructure the current framework for dealing with offenses under the Companies Act, 2013. Apart from restructuring offenses, a sincere attempt is being made for ease of doing business, simplifying compliances along with smoother governance process for corporations. 

The committee has a radical and comprehensive array of changes in mind related to governance as well as disclosure of corporate affairs. Here we list down some of the changes suggested for easier governance of companies.

1. De-registration of Companies on non-maintenance of Registered Office.
2. Disqualification of Directors continuing their directorship beyond permissible time period. A capping of director's remuneration can be done on a percentage of income earned basis
3. Enabling the Central Government with the power to approve the altering of a Companies Financial Year with the  under section 2(41) of Companies Act, 2013
4. Giving Central government the power of approving the conversion of Public companies into Private companies under Section 14 of the Companies Act, 2013
5. In a pursuit to deal with the menace of Shell companies, The panel suggests reintroducing the declaration of Commencement of Business
6. A greater extent of disclosures with regards to public deposits.
7. Reducing Time Limits on filing documents for satisfaction, modifications, and creation of Charges. 

Conclusion

It is refreshing to see the government making conscious attempts to streamline the judicial processes for corporations. These suggested changes, if implemented correctly, can really help revolutionize corporate law in India. Whether or not these changes will be implemented correctly or will be implemented at all, remains an unsolved mystery like most radical changes government seems to suggest. A judicial system, corporations, and wrongly accused individuals all watch with a hopeful eye as these changes unfold.