Steps to Boost Ease of Doing Business | 21 May 2020

Why in News

Recently, the Government of India has decided to bring various amendments to Insolvency and Bankruptcy Code (IBC) and Companies Act, 2013 to enhance ease of doing business in the country.

• The amendments to these laws are a part of the government’s economic stimulus package announced under Atmanirbhar Bharat Abhiyan.
• India was placed at 63^rd position in the World Bank’s ease of doing business report, 2020 out of 190 countries.

Key Points

• Changes in Insolvency and Bankruptcy Code (IBC):
  
  • Minimum threshold to initiate insolvency proceedings has been raised to Rs.1 crore (from Rs.1 lakh, which largely insulates Micro, Small and Medium Enterprises-MSMEs).
  • Suspension of fresh initiation of insolvency proceedings up to one year, depending upon the pandemic.
  • Empowering the Central Government to exclude Covid-19 related debt from the definition of “default” under the IBC for the purpose of triggering insolvency proceedings.
• Decriminalisation under Companies Act, 2013:
  
  • The move seeks to remove criminal penalties from all provisions of the Companies Act, except provisions dealing with fraudulent conduct.
    
    • The decriminalised offences include administrative offences such as delays in filing Corporate Social Responsibility (CSR) reports, or failure to rectify the register of members in compliance with orders from the National Company Law Tribunal (NCLT).
  • A number of offences under the Act previously classified as compoundable offences will not have imprisonment penalty now.
    
    • Compoundable offences are those offences that have either imprisonment or fines as punishments.
  • Some of the offences under the Act have been omitted altogether while others have been shifted from the purview of the NCLT to an in-house adjudication mechanism.
    
    • Under the in-house adjudication mechanism the matter will be dealt by the Registrar of Companies (RoC).
    • The RoC is empowered to decide penalties for the offences under the Act.
• Other changes to raise funds for companies:
  
  • Direct listing of securities by Indian public companies in permissible foreign jurisdictions.
  • Private companies which just want to list Non-Convertible Debentures (NCDs) on stock exchanges not to be regarded as listed companies.
    
    • This will bring additional sources of funding to companies who do not wish to comply with the regulations applicable to listed companies.
• Rationale behind the Amendment:
  
  • The decriminalisation efforts are to pull back on regulations introduced in 2014 aimed at boosting corporate compliance.
  • As compliance levels have improved, the government now felt a need to boost ease of doing business and therefore, it has started to relax criminal provisions.
  • These moves will bring great relief to companies as they can focus on business revival rather than worry about defaults and compliance.
  • These measures will prove to be instrumental in easing the financial situation of firms especially, MSMEs who have been one of the biggest victims of this pandemic crisis.
  • These amendments are admirable steps towards the three-pronged goal of:
    
    • Reducing the burden on company courts,
    • Ensuring investor interests, and
    • Facilitating the ease of doing business.
  • This could well be the step towards showing intent to incentivize domestic and global investments, especially post Covid-19.
• Issues involved:
  
  • The move will hamper the recovery proceedings of financial institutions and lead to an increase in the non-performing asset.
  • Suspension of insolvency initiation for up to a year may protect promoters from losing control of their companies but will not prevent creditors from seeking recoveries through other means.
  • Decriminalisation of provisions in Companies Act are unrelated to Covid-19 and had been announced before the lockdown as part of previously planned reforms.

Sources: IE