Decriminalization of Certain Offences in Company Law Proceedings before the NCLT and How It Reshapes Litigation Risk for Corporate Parties
Riteek Baheti
Associate Member, Institute of Company Secretaries of India (ICSI) LL.B.
Proprietor, Riteek Baheti & Associates
(Kolkata-based Practicing Firm)
Registered Valuer, Insolvency and Bankruptcy Board of India (IBBI)
(Security or Financial Assets Valuation Specialist)
Introduction – Recasting the Corporate Compliance Framework
Over the past few years, India’s company law landscape has undergone a conscious shift from criminal deterrence to compliance facilitation. The decriminalization of several offences under the Companies Act, 2013, has transformed the enforcement approach before the National Company Law Tribunal (NCLT) — replacing imprisonment with monetary penalties and criminal prosecution with administrative adjudication.
This movement, shaped largely through the Companies (Amendment) Acts of 2019 and 2020, reflects the government’s resolve to create a business environment that is fair, non-intimidating, and yet accountable.
The Rationale Behind Decriminalization
Earlier, even technical or procedural lapses by companies — such as delays in filing returns or omissions in statutory forms — could invite prosecution under the Code of Criminal Procedure, 1973.. The compliance framework became burdened with fear, litigation, and reputational risk for directors.
Recognizing this overreach, the Ministry of Corporate Affairs (MCA) introduced a graded penalty regime based on the intent and gravity of each violation. The reform objectives were clear:
- To differentiate procedural lapses from fraudulent acts;
- To reduce litigation burden on NCLT and courts;
- To improve the ease of doing business by fostering a predictable penalty structure.
- To encourage voluntary compliance through administrative adjudication instead of prosecution.
In essence, it marked a move from criminalization of error to civil correction of default.
Key Sections Decriminalized under the Companies Act, 2013
The Companies (Amendment) Act, 2020, decriminalized 48 offences, while the 2019 Amendment had earlier reclassified 16 offences. Below are some of the most significant sections affected:
Section | Subject / Nature of Default | Pre-Amendment Provision | Post-Amendment Change |
Section 53(3) | Prohibition on the issue of shares at a discount | Imprisonment up to 6 months | Replaced with a monetary penalty |
Section 64(2) | Delay in notice for alteration of share capital | Criminal prosecution | Penalty up to ₹1 lakh |
Section 86(1) | Default in registration of charges | Imprisonment and fine | Converted to penalty only |
Section 89(5) | Non-filing of beneficial interest declaration | Imprisonment removed | Penalty structure introduced |
Section 92(5) | Failure to file an annual return | Imprisonment clause omitted | Administrative penalty imposed |
Section 102(5) | Non-disclosure in explanatory statement | Punishment is rationalized as a penalty | Â |
Section 105(5) | Default in appointing a proxy | Criminal punishment has been replaced by a fine | Â |
Section 117(2) | Failure to file resolutions/agreements | Jail term deleted | Civil penalty imposed |
Section 121(3) | Non-filing of AGM report | Decriminalized and routed to RoC | Â |
Section 137(3) | Delay in filing financial statements | Prosecution replaced by penalty | Â |
Section 140(3) | Non-intimation of auditor resignation | Converted to a penalty-driven violation | Â |
Section 165(6) | Exceeding the limit on the number of directorships | Changed from a criminal offence to a penalty | Â |
Section 232(8) | Default in merger formalities | Simplified into an administrative penalty | Â |
Section 248(5) | Non-compliance in striking off a company | Penalty replaced imprisonment | Â |
Section 441 | Compounding of offences | Expanded to cover more defaults under the monetary penalty route | Â |
These reforms collectively reduced the number of compoundable offences and allowed most minor defaults to be settled administratively without invoking criminal jurisdiction.
Impact on NCLT’s Adjudicatory Scope
Before these amendments, the National Company Law Tribunal was inundated with petitions seeking compounding or adjudication of even minor non-compliances — such as delayed form filings, missed board resolutions, or inadvertent statutory lapses.
Now, such matters are directed to the Registrar of Companies (RoC) or Regional Directors (RDs) through the In-House Adjudication Mechanism (IAM). As a result, NCLT can focus on its core jurisdictional responsibilities:
- Adjudication of insolvency and bankruptcy proceedings;
- Oppression and mismanagement disputes;
- Mergers, demergers, and corporate restructuring;
- Class actions and corporate governance violations.
The Tribunal’s docket is now streamlined, with more time available for complex, substantive corporate disputes rather than procedural matters.
Litigation Risk Transformation for Corporate Parties
1. Decreased Personal Liability for Directors
Earlier, directors could face prosecution even for non-fraudulent oversights. The removal of imprisonment provisions from sections such as 92(5), 117(2), and 137(3) has significantly reduced personal litigation risk.
2. Predictable Financial Exposure
Decriminalization has replaced uncertainty with measurable financial consequences. A fixed penalty structure enables corporates to assess potential exposure and plan for compliance contingencies.
3. Reduced Reputational Damage
Criminal cases often resulted in reputational harm disproportionate to the default. Administrative adjudication ensures that minor lapses are corrected without public stigma.
4. Speedier Resolution of Defaults
By routing matters to the RoC or RDs, the compliance cycle has become faster and more efficient. This avoids prolonged litigation timelines that used to stretch across years.
5. Greater Confidence for Independent and Foreign Directors
Fear of imprisonment or criminal trial had deterred many professionals from accepting board positions. The current civil approach has revived confidence and made India’s corporate regime more globally aligned.
Maintaining Accountability Amid Leniency
It is important to note that decriminalization does not equate to deregulation. Serious offences involving fraud, misrepresentation, or wilful default continue to invite severe criminal consequences.
Sections such as 447 (Fraud), 448 (False Statements), 449 (False Evidence), and 450–451 (Punishment where no specific penalty provided) remain firmly intact.
Thus, the reform is selective and nuanced — leniency for inadvertent non-compliance but rigidity for wilful misconduct. It builds a compliance ecosystem that rewards transparency and punishes deceit.
Ripple Effect Across Other Regulatory Frameworks
The success of these amendments has influenced other laws, such as the Limited Liability Partnership (Amendment) Act, 2021, which followed a similar principle of decriminalization.
Even regulators such as SEBI and the RBI are increasingly adopting graded enforcement models, favoring civil penalties over prosecution where intent to defraud is absent.
This convergence signals a maturing legal environment — one that distinguishes between error and evasion.
Conclusion – A Step Toward Constructive Compliance
The decriminalization of certain company law offences marks a turning point in India’s corporate jurisprudence. It sends a strong signal: compliance is a culture to be nurtured, not a fear to be imposed.
For corporate stakeholders, this evolution has reduced litigation risk, improved regulatory predictability, and empowered boards to operate without the constant threat of prosecution. The NCLT, in turn, has emerged leaner and more focused on substantive matters of insolvency, restructuring, and governance.
As India positions itself as a global investment hub, one reflective question lingers —
Will this reform sustain a culture of genuine compliance, or will the comfort of leniency blur the line between mistake and misconduct?
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