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Special courts for Co Law breaches
May, 31st 2008

Corporate houses could soon expect their lapses and offences being adjudicated on a faster pace. In a move to avoid judicial delays consuming the time and resources of companies, the government would soon set up special courts across the country to exclusively handle cases of company law violations.

The move is a part of rationalising the penalty structure and dispute settling mechanism that the government is contemplating in the new company law. The judiciary is already bogged down by a large number of pending cases that make it difficult to resolve company law offences. Currently, over three million cases are pending in 21 high courts.

While these special courts would exclusively deal with offences under the company law, the proposed National Company Law Tribunal would eventually replace two other judicial bodies the Company Law Board that handles cases of mismanagement and oppression in companies and the Board for Industrial and Financial Reconstruction, that deals with industrial sickness.

The proposed new company law, which the ministry of corporate affairs is plans to table in the ongoing Parliament session, seeks to make the penalties more meaningful and effective by providing higher deterrence to repeat offences and prescribing merely additional fee for procedural ones. Procedural lapses include late filing of statutory documents with the registrar of companies.

In the case of serious offences, penalties would be levied separately on the company as well as on the responsible officers. The concept of officers in default in the present company law of 1956 is being redefined to fix the responsibility of officials at various levels more accurately. The proposed bill defines a layer of senior officials from the CEO to the company secretary as key managerial personnel who would be considered at fault for the companys lapses.

The proposed bill would allow courts to provide a lesser penalty to those who cooperate with the authorities in investigations. It also introduces the concept of disgorgement to recover the ill gotten wealth of officers in default. The quantum of penalty would be specified in the rules to be made under the law.

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