The economic package to tide over the coronavirus pandemic has also come out with some major reform and market-freeing announcements, and Sunday was no different with Finance Minister Nirmala Sitharaman laying down a number of reforms for the corporate sector ranging from decriminalisation of the Companies Act to permitting direct listing of Indian public companies in other countries.
Announcing the fifth and final tranche of the Rs 20 lakh crore economic package here, Sitharaman said that minor technical and procedural defaults under the Companies Act will be decriminalised.
The decriminalised violations include shortcomings in CSR reporting, inadequacies in board reports, filing defaults, and delay in holding of annual general meetings. Further, the government will drop seven compoundable offences and five offences will be dealt with under an alternative framework.
In yet another move towards fuller capital account convertibility, the government has thrown open the doors for Indian public companies to directly list their shares abroad and access a larger pool of capital.
It has also allowed private companies that list NCDs on stock exchanges not to be regarded as listed companies.
Sitharaman said that direct listing of securities by Indian public companies would be allowed in permissible jurisdictions. Necessary regulations allowing direct overseas listing by the Indian entity is expected soon after amendments to the Company Act and FEMA regulations are passed.
At present, direct listing by the Indian companies on foreign stock exchanges is not permitted. Likewise, foreign companies are also not allowed to directly list their equity shares on the Indian stock exchanges.
Furthering the agenda of ease of doing business in the country, the minister announced a slew of relaxation measures including lower penalties for all defaults for small companies, one-person companies, producer companies and start-ups.
The government will also take steps towards creating additional and specialised benches of the National Company Law Appellate Tribunal (NCLAT). This has been under consideration for some time now.
Further, heeding the call from the industry, MSMEs and several experts, the government has also decided to set up a special insolvency framework for MSMEs under Section 240A of the Insolvency of Bankruptcy Code.This has been a long pending demand of the industry and economists.
The threshold for insolvency will also be raised to Rs 1 crore from the current Rs 1 lakh which will be supportive for the MSME sector.
Also, no fresh insolvency case will be admitted for the next one year under the Insolvency and Bankruptcy Code (IBC) in view of the coronavirus pandemic.
The measures have been acknowleged by the industry and experts. Assocham President Niranjan Hiranandani said that the industry is elated with the fifth and final tranche of measures involving relief to the business community by removing several impediments like the exclusion of debts under IBC related to COVID and decriminalising of Companies Act violations involving minor technical and procedural defaults.
Hiranandani said that the industry had been demanding these reforms to prevent unnecessary stress and pressure facing by the MSME due to costly litigation and fear of criminal proceedings.
Sumit Batra, a corporate lawyer, said that decision to Increase the threshold limit to initiate proceedings under IBC from the existing limit of Rs 1 lakh to Rs 1 crore, exclusion of default due to Covid-19 and fresh insolvency cases for 1 year will benefit businesses but will hamper the recovery prospects of financial institutions in cases of existing defaults by a corporate entity.
Batra, however said that the economic package is likely to provide assistance and incentives to sectors in order to recover from the economic slump but the proposed amendments to IBC will in no way address those issues.
Harish Sharma, Executive Director of REPL, said that the the last tranche by the Finance Minister brings in a positive vibes for the corporates as well as MSMEs as no fresh insolvency proceeding will be initiated up to one year which would allow them to work fearlessly.
"Apart from this, decriminalisation of Companies Act involving minor technical and procedural defaults will also benefit the corporates at large. These reforms will only give a confidence to the existing corporates but will also ensure the ease of doing business in the country, therefore, in long term make India 'Self Reliant'," Sharma said.
( With inputs from IANS )