– Team Corplaw | corplaw@vinodkothari.com

The Statement of Objects and Reasons refers to the Govt’s constant “endeavour to facilitate greater ease of doing business for corporates”; after reading through the provisions of the Bill, that indeed seems to be the intent, though, as happens often, the intent may get miscarried.  The provisions are admittedly inspired by the recommendation of the 2025 High Level Committee on Non-financial Regulatory Reforms.

Broadly, the Bill focuses on decriminalisation, streamlining of provisions, bringing more audit quality oversight with powers to NFRA, regulation of the profession of valuations, etc. While doing so, it also makes the provisions of the State more aligned to present day realities, permitting greater digitisation, recognising concepts such as stock-appreciation rights or similar share-related benefits, etc. Note that the Bill has been referred to the Joint Parliamentary Committee.

Directors and KMPs

• Directors related 
  • Independence criteria for Independent director
    • Clarification u/s 149(6)(e)(i) and (ii) referring to disability of a person to be appointed as ID in case of his association with the appointee company, its holding, subsidiary, associate or their auditor for not just “three financial years immediately preceding the financial year”  but also “or during the current financial year”. 
    • Amount of transaction allowed with a legal or consulting firm whose employee / partner / proprietor may be appointed as the ID of the company / its holding / subsidiary / associate has been changed from “10% or more of the gross turnover of such firm” to “amounting to 10% or such lower per cent., as may be prescribed of the gross turnover of such firm”
      • Where the transaction of such legal or consulting firm with the company, its holding or subsidiary or associate company is less than the prescribed thresholds, the ID may continue his association with the legal or consulting firm
    • Clarification: that every ID shall ensure that he continues to fulfil the requirements specified under sub-section (6) during the term of his appointment.
    • The restriction in respect of appointment or association in any other capacity during cooling off period of three years is applicable to the company as well as its holding, subsidiary or associate company.
    • Clarification: any period during which an ID has served as an additional director of the company, shall be included in his tenure as an ID
  • Additional director
    • An additional director may hold office up to the date of the next general meeting or up to a period of three months from the date of his appointment, whichever is earlier.
  • Restriction for appointment of a person not considered / approved to be director in a general meeting
    • a person whose appointment as a director could not be considered or could not be approved in a general meeting, shall not be appointed by the Board as an additional director, or alternate director or a director against a casual vacancy without the prior approval of its members
  • Disqualifications of a director
    • Clarified: While sec 188 has been decrimilarised since 2020, the respective reference u/s 164(1)(g) was not amended. Post amendment, a person has been subjected to a penalty for default under section 188 of the said Act will be disqualified from appointment. 
    • an auditor or a secretarial auditor or a cost auditor or a registered valuer or an insolvency professional of the company or its holding, subsidiary or associate company discharging the functions as such under the Act or under the IBC during the immediately preceding three financial years or during the current financial year, shall be disqualified to be appointed as a director.
    • What  or who is a “fit and proper person”
      • Criteria shall be prescribed in the rules
    • Reduces the period of non-filing of financial statements or annual returns from “3  financial years” to “2 financial years” so that companies are more diligent in filing such documents within time.
    • Default of sec 164(2) will lead to vacancy of office in every company where he is a director (including the company which is in default under that sub-section), after six months from the date of incurring such disqualification or upon expiry of his tenure in such company, whichever is earlier. Proviso to sec 167(1)(a) also proposed to be amended.  Of course, the automatic vacation of office takes place 6 months after the disqualification. This may result in a curious situation where every director of a defaulting company gets disqualified, leaving the company headless. How does a headless company ever come out of the default is a curious question. 

• Board Meeting 
  • Small companies / OPC and dormant companies may have one BM in a calendar year against the requirement of one BM in each HY.
  • Subsequent disclosure u/s 184(1) will be required only in case of  any change in the disclosures made and not “at the first meeting of the Board in every financial year”.
• Sec 185 (clarification)
  • LLPs are also covered along with firms u/s 185(1)(b) i.e company cannot extend loan / guarantee/ security in connection with loan to even LLPs where the directors / their relatives are partners 

• Resignation by whole time Non director KMP – New insertion 203A.
  • CFO, CS may resign giving notice in writing to the company, 
  • Board shall take note and shall intimate the RoC:
  • In case of failure to intimate RoC by Board, said KMP may forward a copy of his resignation along with detailed reasons for his resignation to the RoC
  • Resignation takes effect from the date on which the notice is received by the company or the date, if any, specified by such KMP in the notice, whichever is later. This is, again, surprising as KMPs are not only office-holders, they are also bound by the contractual terms of their employment. It is unthinkable to think of an employment contract that allows an office holder at that level to resign with immediate effect. While the very intent of this provision is difficult to understand, in our view, the only way to align this with employment contracts is to say that for giving the notice u/s 203A, the KMP shall have to adhere to the employment contract. 
  • Such KMP will be liable even after his resignation for the default for which he was liable during his tenure.

• Secretarial Audit  – Sec 204
  • Allowing multi disciplinary firms with majority of PCS as partners to undertake secretarial audit

• Directors Report 
  • Additional disclosure in directors report:
    • While the management is required to explain or comment on every observation, comment or adverse remark of auditor, specific attention has been made to comment on matters relating to:
      • financial transactions
      • matters which have any adverse effect on the functioning of the company
      • maintenance of accounts
    • details in respect of composition of the ACB and where the Board had not accepted any recommendation of the ACB, a statement along with the reasons for the same

Issuance and buy of securities 

• Private placement offences become more punitive: Proposed amendment to increase the penalty for private placement offences to Rs 2 crores or up to the amount involved in the placement, whichever is lower. This may potentially relate to some of the so-called private placements against which adjudication orders were made by some registrars. Read our related articles

• More flexibility for Buyback of shares [Sec 68]
  • Power to prescribe different percentage of maximum buy-back value (based on aggregate of paid-up capital and free reserves) for prescribed class of companies
    • Currently the maximum buy-back size is 25% of aggregate of paid-up share capital and free reserves for all classes of companies
    • It appears that the government may offer more flexibility for scaling down business by companies; notably, the tax provisions for buybacks were rationalised by the Finance Act, 2026.
  • Enabling prescribed class of companies to make upto two buyback offers in a year; with minimum gap of 6 months between closure of first buyback offer and opening of second buyback
    • Such enabling clause is proposed for companies that are debt-free
    • Currently, minimum time gap between two buyback offers shall be atleast 1 year 
  • Doing away with the requirement of affidavit for declaration of solvency by the directors

• Share capital of IFSC companies 
  • Section 43A inserted
    • Companies set up and incorporated in IFSC are allowed to convert, issue and maintain capital in permitted foreign currency
      • IFSCA will prescribe regulations. 
    • Books of accounts, financial statements and other records to also be aligned to be prepared in the  permitted foreign currency unless IFSCA permits to maintain these in Indian rupees

Presently, the Companies Act does not include specific provisions to enable companies to prepare accounts or financial statements in foreign currencies. Taking into account the nature of companies set up in IFSC jurisdiction, this is a welcome change. It also seeks to clarify that such companies shall pay fees, fines and penalties under the Companies Act and the rules made thereunder in Indian rupees.

• Recognition of other forms of share-linked benefits, such as SARs, RSUs etc.  
  • Inclusion of reference to “or such other scheme linked to the value of the share capital of a company” in certain provisions, such as:
    • Issue of shares to employees on preferential basis in addition to ESOPs [Sec 62(1)(b)]
    • Class of security holders to be excluded while counting the number of allottees in a financial year for private placement limits [Sec 42(2)
      • Reason – executive compensation is issued with approval of shareholders
    • Enabling buyback of such securities [Sec 68(5)(c)]

• Come-back provision: Trust not to be recognised as member [Sec 88(2A)]
  • The good old principle of CA 1956, that no notice of trust shall be taken in the register of members, subsequently removed in CA 2013, is now finding its way again.
  • Quite likely, the trigger may have been FATF concerns, to ensure that beneficial ownerships are not garbed under the so-called notice of trust. 
  • However, the classic principle that companies shall not recognise holding of shares in fiduciary capacity belongs to the bygone era where shares were partly paid, and companies had difficulty in claiming money from the contributories. In recent practices, the law specifically requires noting of beneficial interest [sec. 89] – hence the relevance of this provision is difficult to understand.

Dividend and IEPF 

• Dividend and IEPF 
  • Clarified that the dividend not paid / claimed on the shares which has been transferred to IEPF, shall also be transferred to IEPF
  • Clarified that amounts in respect of shares bought back and extinguished, remaining unpaid or unclaimed for seven or more  shall be credited to IEPF

Audit and Auditors 

• Audit and auditors
  • Non audit services
    • an auditor or audit firm of prescribed class or classes of companies shall not provide, directly or indirectly, any non-audit services to the company or its holding company or subsidiary
    • restriction under s. 144 shall also apply for a period of 3 years after the auditor or audit firm has completed his or its term u/s 139(2)
  • Fine prescribed for sec 143 (except sub-section 12) and sec 146
    • This will mean, if the auditor is not attending the general meetings, he shall be liable to fine and punishment under sec 147(2)
  • Cost Audit
    • Empower the Central Government to provide standards of cost accounting by rules, after examination of recommendations of the Institute of Cost Accountants of India.

NFRA 

• Strengthening NFRA – Sec 132
  • NFRA shall be a body corporate 
  •  Chairperson shall have the power of general superintendence and direction of affairs of NFRA.
  •  the executive body of NFRA may, by way of a general or special order in writing delegate such of its powers and functions as it considers necessary to the chairperson
  • NFRA can give orders relating to imposing penalty or debar the member of the firm
  • NFRA can also give warning or censure to the member or the firm or may require additional professional training of the member or the firm or can also refer the  matter to central government for taking action 
  • any person who fails to comply with any order of the NFRA u/s 132(4) or fails to pay the penalty imposed shall be liable to punishment with imprisonment, fine and further period of debarment. 
  • NFRA shall meet at such times and places as specified by regulations of the  said authority.  
  • Appointment of secretary and such other employees shall be done by the NFRA.
  • No act or processing of NFRA shall be invalid merely by the reason of- 
  • (a) any vacancy in, or any defect in the constitution of such Authority; or (b) any defect in the appointment of a person acting as a member of such Authority; or (c) any irregularity in the procedure of such Authority not affecting the merits of the case. Subsection(16) to be inserted 

• Intimation of registration details of auditors and filing of returns  – Section  132A
  •  No firm shall be appointed as auditor unless the individual or firm  intimates the details of his or its registration with the ICAI, to the NFRA within such time.
  • The auditors shall file such documents or returns or information with the NFRA, , as may be specified by regulations by the said Authority
  • Non compliance with the above provision shall attract penalty  of not less than twenty-five thousand rupees, but which may extend to five hundred rupees for each day during which such default continues, subject to a maximum of twenty-five lakh rupees, if such person is an auditor or an audit firm
  • If a person while performing his duties under this section, knowingly furnishes false information, omits material facts or wilfully alters/suppresses/destroys required documents he shall be liable to penalty of not less than fifty thousand rupees, but which may extend to one thousand rupees for each day during which such default continues, subject to a maximum of fifty lakh rupees, if such person is an auditor or an audit firm.

• Section 132B
  • The CG may make grants to the NFRA.
  • NFRA fund shall be created and the following shall be credited there:

• Grants by the Central government 
• All fees received by the authority
• All sums received by the said authority from such other sources
• Interest  or other income received out of the investments made by NFRA.
• The fund shall be applied for meeting the expenses of NFRA for the discharge of its functions.

• NFRA can now give directions to the certain classes of companies as it considers appropriate.
• NFRA can hold inquiry and it shall have power to summon and enforce attendance of any person
• There are some more changes relating to NFRA which are not very relevant.

Corporate Social Responsibility 

• Corporate Social Responsibility
  • Enhancing applicability threshold of net profit from 5 crore to 10 crore  under 135(1) 
  • Enable additional time period for transfer of unspent CSR amounts relating to ongoing projects to the Unspent CSR Account from “30  days” to “90 days” i.e extending the time till 29th day of June of each year. 
  • Companies having minimum CSR spent u/s 135(5) up to 1 crore (or such other higher amount) need not constitute the CSR Committee [sec 135(9)]
  • New insertion: prescribed class or classes of companies which fulfil prescribed conditions shall not be required to comply with the section

Schemes 

• Easing of Schemes of arrangements
  • An important and welcome change: Schemes of arrangement will not require adjudication by multiple NCLTs in case of multiple states. Proviso to sub-section (1) allows the matter to be disposed of by the NCLT of the transferee or resulting company’s jurisdiction. Currently, a lot of time is lost as each Bench continues to wait for the orders of the other.
  • In case of  fast track mergers, applications are filed before jurisdictional RD by transferee/ resulting company, and in cases where the RD found that the application is not in public interest or in the interest of the creditor, RD is required to file an application to the Tribunal. Now, such application is to be made to the Tribunal  having jurisdiction over the transferee/resultant company only.
  • In case of demerger, a report from OL will not be  needed.

• Fast Track mergers [Sec 233]
  • The amendment reduces approval requirements in the following manner- –
    • In case of members,  twin test approval will be applicable. i.e. ‘Majority in number representing 75% in value of the members present and voting’
    • In case of creditors, 75% majority in value will suffice as opposed to the present 90%..
  • Central Government gets power to make rules procedures with regard to fast track mergers u/s 233. 

• A new Section 233A has been introduced, dealing with ‘Treasury shares’
  • While sec 230 and 232 specifically provides that any treasury shares arising as a result of a compromise or arrangement shall be cancelled and extinguished, however treatment w..r.t. Shares held prior to commencement of CA, 2013 are not provided in the Act.
  • To avoid misuse of voting rights vide such treasury shares, Section 233A now provides a three-year sunset period requiring all existing treasury stock in entities to not carry voting rights after such period.
  • Consequence of non compliance with the above is also prescribed as follows-
    • In case of failure to comply within the prescribed period of 3 years,  such shares shall be  cancelled or extinguished, and such extinguishment or cancellation will be treated as capital reduction
    • Further, non compliance will attract a penalty of Rs. 10,000/-  per day during which the default continues to the company and every officer in default.

IBBI to be Valuation Authority; valuers get significant powers and responsibilities 

• IBBI – Appointed as “Valuation Authority” and entrusted with the powers to grant certificate to Registered Valuers and Valuers’ Organisation and imposing penalties in Registered Valuers
• Appointment of a valuer will be done with audit committee resolution:
  • The new requirement that appointment of valuers will have to be done by the audit committee should be read with sec 247 (1) – it only relates to such valuations as are required under the Act.
• Several powers, including those for regulation making, are proposed to be given to IBBI.

Striking off names of defunct companies – [Sec 248]

• Conditions for strike off names by RoC becomes  to introduce other grounds
  • non happening of any significant accounting transaction in the preceding 2 years and in the current FY.
    • Meaning of significant accounting transaction same as u/s 455
  • Additionally, has not filed financial statements or annual returns that were due to be filed for two consecutive financial years preceding the previous financial year
  • An illustration to clarify the same has also been inserted.
  • In case of opting for striking off by companies, ‘manner of extinguishing liabilities’, to be prescribed vide Rules
  • The offence relating to filing an application for strike off in violation of the prescribed conditions has been decriminalised by replacing the penal provision with a monetary penalty
    • Earlier–  Punishable with fine which may extend to Rs. 1,00,000 
    • Now: Liable to a penalty of Rs. 50,000

• Revival application u/s 252
  • If made within 3 years of striking off, application to be filed before RD
• If made after 3 years but before 20 years, application to be filed before NCLT

• Incorporation related 
  • Declaration from professionals required at the time of incorporation only if their services are engaged in the formation or incorporation of such company [Sec 7(1)(ba)]

• Ease of compliances 
  • Charges related
    • Additional time for registration of charges for prescribed class of companies (for e.g. – small companies)
      • 120 days instead of existing 60 days from creation of charge after payment of such ad valorem fees as may be prescribed. 
  • Auditor appointment (small companies)
    • Class of companies like small companies to be prescribed who, upon fulfilment of the prescribed conditions, shall not be required to appoint auditors under Chapter X. 

• Moving towards digitalisation 
  • Powers to prescribe certain class of companies that will be required to maintain a website, an email address and other modes of communication [Sec 12A]
    • The class of companies will be listed companies or other unlisted public companies meeting prescribed thresholds 
    • The form and manner of these modes will be prescribed
    • Details of website, e-mail address and other modes of communication, and the changes therein shall be intimated to the Registrar in the prescribed manner and timeline
  • Powers to prescribe class of companies that will be required to service prescribed class of documents to their members only through electronic means [proviso to Sec 20(2)]
    • Manner in which members may seek physical copies will be prescribed
  • Enable holding of AGM and EGM in fully physical/ virtual/ hybrid mode in the manner prescribed under the rules [Sec 96 and 100]
    • However, mandatory to hold AGM in physical mode atleast once in every 3 years 
    • Number of members referred to in sec 100(2) may put requisition for the meeting to be held in a hybrid mode
    • For fully virtual EGMs, notice period to be reduced from 21 clear  days to 7 days or such period and manner to be prescribed by the rules 
• In case of specific requisition by members to hold meeting in hybrid mode, mandatory to conduct meeting in such form

• Penalty and prosecution 
  • Fixed penalty prescribed in place of a range of penalty 
  • The penal proposals inter-alia include the following: 

Section	Action	Existing Penalty	Proposed Penalty
4(5)(ii)	Name applied by furnishing wrong or incorrect information	Upto 1 Lakh	50, 000
42(10)	Makes offer or accepts money in contravention of sec. 42	Upto money raised through private placement or 2 crore, whichever is lower	Money raised through private placement or 2 crore, whichever is lower
128(6)	MD, WTD, CEO fails to comply with Section 129	50,000 – 5,00,00	5,00,000 – listed company and 50,000 -any other company
166(8)	Director  violated the provisions of sec. 166 except sub-section (5)	1 lakh – 5 lakh	Listed company – 5 lakhOther company – 2 lakh
189	Fails to comply with provisions w.r.t Register of contracts or arrangements in which directors are interested	NA	2 lakh
446B	Lesser Penalty for certain companies	In case of Company- upto 50% of penalty specified in provisions upto 2 lakh In case of officer in default or any other person- upto 50% of penalty specified in provisions upto 1 lakh	In case of Company- 50%  or such per cent not exceeding the 50% penalty prescribed in such provision upto 2 lakh In case of officer in default or any other person-50%  or such per cent not exceeding the 50% penalty prescribed in such provision upto 1 lakh

• Fixed penalty in case of non-compliance under sec 152, 155, 156. Also fixing a maximum penalty upto 5 lakh in case of continuing non-compliance. 

• Decriminalisation of offences under following provisions, including:

Section	Action	Existing FIne	Proposed Penalty
128(6)	MD, WTD, CEO fails to comply with Section 128	50,000 – 5,00,000	5,00,000 – listed company and 50,000 -any other company
147(1)	Punishment for contravention of provisions of sections 139 to 146	Company- Fine – 25,000 – 5,00,000 OID – Fine – 10,000 – 1,00,000	Company – Penalty – 1,00,000 – 5,00,000 OID – Penalty – 25,000 – 1,00,000
166(7)	Default in complying with Section 166 except sub-section (5)	Director – 1,00,000 – 5,00,000	Listed company – 5,00,000Any other Company – 2,00,000
167(2)	In case a Director continues as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications	Director – 1,00,000 – 5,00,000	Listed company – 5,00,000Any other Company – 2,00,000

• Realigning the financial year to the period ending on 31st March
  • Companies / body corporates which have changed their FYs pursuant to NCLT approval, may realign it back to period ending 31st day of March of the following year though:
    • Approving the application; or
    • On commercial consideration

• Expansion of definition of small companies
  • increasing the upper limit of paid-up share capital to Rs 20 crore from existing 10 crore and upper limit of turnover to Rs 200 crore from existing 100 crore [sec 2(85)]

Compounding of certain offences [Sec 441]

• Increase of  amount of fine involved to INR 1 crore for the RD to take up compounding matters 

Miscellaneous [Sec 447- 470]

• Increase in limit of amount involving fraud 
  • The threshold for applicability of fraud leading to minimum 6 months  imprisonment increased to 25 lacs instead of 10 lacs. Any fraud involving an amount lesser than that also liable to face imprisonment which can extend to 5 years and/or fine of 1 crore rupees (earlier 50 lacs rupees).
• Decriminalisation of certain offences like improper use of word ‘limited’ or ‘private limited’ 
• CG reserves the power to issue  guidelines circulars and directions , for clarifying the intent of a provisions or laying out the procedural requirement with or without holding consultation with experts
• Non disclosure of source of information where investigation has been probed by into SFIO
• In the context of ‘Dormant Company’, significant accounting transaction also excludes receipt or payment not relatable to the business or operations of the company
• Adjudication of Penalties
  • Assistant Registrar additionally may be appointed as adjudicating officers for adjudging penalty
  • CG to notify additional appellate authority in addition to RD, not below the rank to Joint Director
  • Appointment of Recovery officer for recovering penalty under the Act from persons who fail to pay with power to attachment and sale of movable and immovable property [Sec 454B]
  • Constitution of “Specified Authority” for conducting the settlement proceedings for contraventions which shall be liable for penalty under Act [Sec 454C]

Read our coverage on the amendments proposed in the LLP Act, 2008 here.

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