With the central government amending a few sections of the Companies Act, minor defaults and mistakes made by directors of companies will no longer be considered as a criminal offence. Finance Minister Nirmala Sitharaman has recently said that it is sections where minor technical errors and procedural defaults are treated as a criminal offence got amended. This will help startups attract investors who understand the risks of the current scenario and hence expect small growth.
As per the new amendment, errors in CSR reporting, board reports, default filing and AGM enforcement will no longer be criminal offences. The Centre has also decided to impose only a minimum penalty on startups and small companies in the case of a compoundable offence.
Earlier, the minor flaws in company filing could cripple the valuation of startups. This was an obstacle for startups in fund racing and more areas. The criminal liability of company errors and the penalty accumulated could negatively impact the growth of early-stage startups. The Centre has now relaxed those segments. The move will support startups that are in crisis due to the corona and lockdown find funds and approach the investor retaining their valuation.
