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Reformation of the Companies Act- An overhaul of Corporate Affairs

Updated: Jun 1, 2022

- Priyanka Parikh and Priya Gada


The three phases of corporate law i.e. the company law, competition law, and the insolvency law are relatively recent dated. Company law stems from the Companies Act, 2013 on the other hand the insolvency law originates from the Insolvency and Bankruptcy Code of 2016, and the competition law is launched as The Competition Act of 2002. This brings us down to the conclusion that the fortifications of the Indian corporate law are of relatively recent origin in terms of their enforcement jurisprudence. The Companies Act, 2013 is the landmark legislation that is governing the companies in India. The companies act has been modified time and again to provide clarity in the commercial world and also to shield the interest of small investors, depositors and debenture holders, etc. Hence the companies act in India have always been a cut above of the other corporate and economic legislations towards ensuring better governance of the corporate sector in the liberalized global economy.


The government introduced The Companies (Amendment) Act 2020 to alter some provisions of the Companies Act, 2013. The sanction of the Companies Act, 2013 allowed India to have a modern jurisprudence for regulation and growth of corporate sectors in India. The act was validated for changing the economic and business environment not only domestically but also globally to encourage business-friendly corporate regulations, and government norms and increase the level of transparency.

The purpose of the Companies Act, 2013 is to provide friendly corporate initiatives, good corporate governance, enhanced disclosure norms, audit accountability, protection of small stakeholders, framework for insolvency regulation, and institutional framework. The Government of India has enacted a plethora of amendments, relaxations, exemptions, and simplifications in different Acts, Rules, Regulations, etc. In the concatenation, the Companies Act of 2013 has also been amended to extend relief to the business entities which are governed under the Companies Act, 2013.

The companies act has always been a concern of the legislation of India. The lengthiness and the complexity of the companies’ laws lead to the consistent delay in the relevant changes to be bought in the act. Companies Amendment Act 2020 is a major step, which provides for new reforms, decreased penalties, and other necessary changes in the form of amendments.

A summary of The Companies Act from 1956-2013

Companies have a major role in the advancement of an economy. The Companies Act, 1956 was brought to control the creation, functioning, and funding, and dissolving of the companies. The original act contained 658 sections. The act conferred the winding-up jurisdiction in the high courts. The companies act tried to play a balancing role between the autonomy of management and investor protection.

Overview of the Companies (Amendment) Act, 2020

The companies act has been amended for the fourth time since 2013, the act was amended previously in 2015, 2017, 2019, and 2020. A total of 61 sections are amended presently in the Act and four sections have been added which include provisions for Producer Companies.

Company law Committee (CLC) was started in the year 2019 to enable greater advancement for corporations, the ultimate goal was to sanction a few provisions of the act. Besides relaxation of CSR laws, compensation to non-executive directors in case of insufficient profits, producer companies, periodic financial results by non-listed companies, etc has been provided. The implementation of the act will create a more liberal economy and business-friendly environment in the market system.

The main motive is to curb the insignificant violations by the companies which don’t have any basis for fraud or serious malpractices. The act is divided into two fragments - The first one dealing with decriminalization of certain specific offenses and the second one dealing with reduction in penalties with the aim of civilising the scope of doing business in India.

The need for regulation in the companies Act

The Company Law Committee kept a few relevant points in mind while regulating the act. It has the ministry of corporate Affairs to further review the sections on the offences based on the recommendations the new amendments were made.

1. To legitimize specific compoundable offences that are not a part of serious frauds or are minor offences that usually do not form a part of public interest.

2. The definition of listed companies had been changed. In short, it reduced the procedural formalities and burden.

3. Jurisdiction of the trial court was to be specified.

4. Provisions for remuneration to the non-executive directors to be amended

5. Dispensation from fines due to delayed filling in annual returns

Critical evaluation

The major shove behind the enactment of the companies act lies in the motive of the union government to ease the implications of corporate penalties on companies and business enterprises. It is a planned strategy to not only minimize the amount of penalty and provide statutory relief but also to help grow and flourish the business in India. Another important phase of the regulation was to introduce branches of NCLT in New Delhi. The advantage of recategorizing certain offences as civil offences is that dealing with civil offences is comparatively less cumbersome than proving guilty under a civil case requires only a balance of probabilities concerning the circumstances. Though, the amendment doesn’t provide for relief in all cases. The offences which are grave in nature or involve public wrong are not amended for liberal punishments in the act.


The Central Government introduced Companies (Amendment) Act 2020 to guard the company law provisions and amend, insert and eliminate the respective provisions and sections which need to be replaced with the new ones. There was a need for massive change in company regulations that would enhance the business environment in India for entry-level enterprises and attract foreign investment. This new amendment act will help small-scale enterprises and startups in keeping compliance with the rules. Trivial offences are now eradicated and punishments for other civil wrongs under the act have also been reduced or eliminated completely. The new Companies act is a positive step toward making company law modern and equivalent to global standards. The government has brought a number of policy reforms to ease working in the corporate field; however, it is the moral and ethical duty of the corporate and professionals to abide by the law and comply with it in its true sense.

Priyanka Parikh and Priya Gada are third year students at Pravin Gandhi College of Law, Mumbai.

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