Decriminalisation and Enforcement Restructuring Under the Corporate Laws (Amendment) Bill, 2026: What the 2026 Bill Could Mean for Corporate India

I.  The Policy Architecture: Why Decriminalisation Matters Now

India's corporate regulatory framework is undergoing a structural reset. The Corporate Laws (Amendment) Bill, 2026 (the “Bill”), currently under review by a Joint Parliamentary Committee, represents the most comprehensive recalibration of the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 (“LLP Act”) since the 2019 decriminalisation cycle. At its core, the Bill does what Indian corporate law has long needed to do: it draws a clear legislative line between serious misconduct and procedural non-compliance and treats them categorically differently.

For years, India's corporate statute imposed criminal liability, complete with the threat of imprisonment, for defaults that were, in substance, administrative or technical in nature: a delay in registering a charge, a lapse in maintaining books of account, a failure to furnish information within prescribed timelines. The consequence was disproportionate, the deterrent was blunt, and the chill on entrepreneurship and board-level participation was real. The Bill corrects this structural distortion by systematically migrating a broad category of defaults from the criminal to the civil enforcement regime, replacing fines and imprisonment with calibrated monetary penalties, adjudicated through an electronic platform.

The business implication is immediate: compliance failures may become less criminal in character, but they do not become less important. The enforcement model is changing, not disappearing.

II. Scope of Decriminalisation Under the Companies Act, 2013

The Bill sweeps across the Companies Act, targeting specific provisions where criminal liability was demonstrably disproportionate to the underlying default.

1. Books of Account Violations- Graduated Penalties Replace Blanket Criminal Fines: Under the existing framework, violations relating to the maintenance of books of account attracted a criminal fine of INR 50,000, extendable to INR 5 lakh. The Bill proposes to replace this with a calibrated civil penalty structure: INR 5 lakh for listed companies and INR 50,000 for others for general contraventions; and steeper penalties of INR 20 lakh (listed) and INR 5 lakh (others) for specific defaults relating to the maintenance or inspection access obligations. The signal to CFOs is unmistakable: books of account compliance is being enforced harder, not softer, but through a proportionate, non-criminal mechanism.

2. Inspection and Information Defaults- A Defined Ceiling Replaces Open-Ended Liability: Failure to furnish information or documents during Registrar inspection, currently a criminal offence attracting up to INR 1 lakh plus INR 500 per day. The bill proposes a civil penalty with a defined ceiling of INR 5 lakh for companies and INR 1 lakh for the defaulting officer. The proposed removal of criminal exposure is particularly significant for compliance heads managing time-sensitive regulatory requests from the Registrar of Companies.

3. Director Duty Violations- Serious Misconduct Stays Criminal; Procedural Lapses Do Not: The decriminalisation of director duty violations is deliberate and nuanced. Criminal punishment under Section 166 is retained only for violations of sub-section (5), which deals with undue personal gain, and courts may additionally order repayment of such gains to the company. All other violations of Section 166 are proposed to be migrated to civil penalties: INR 5 lakh for listed companies and INR 2 lakh for others. This distinction reinforces the Bill's core architecture: bad-faith conduct remains criminal; procedural non-compliance becomes civil.

4. Buy-Back Contraventions- Civil Penalties Sharpened for Listed Entities: Buy-back contraventions are proposed to be fully decriminalised, but the penalty structure is calibrated by entity type: INR 25 lakh for listed companies and INR 2 lakh for others at the company level; INR 5 lakh (listed) and INR 2 lakh (others) for defaulting officers. Listed company Boards approving buy-back transactions should note that the civil liability exposure has, in effect, been significantly increased from the prior criminal fine band.

5. Prospectus and Securities Subscription Defaults- Fixed Penalties End Judicial Uncertainty: Contraventions related to prospectus requirements and securities subscriptions are proposed to be subject to fixed civil penalties INR 2 lakh for Section 26 defaults, and INR 25 lakh (company) plus INR 2 lakh (officer) for non-Section 40(3) defaults. The shift from variable criminal fines to fixed civil penalties removes judicial discretion in quantum determination and introduces predictability, which is itself a meaningful tool for corporate risk management.

6. Audit and Cost Audit Contraventions- Proportionality for Procedural Defaults: Audit-related defaults covering appointment, filing, and reporting obligations are proposed to be converted to civil penalties under a new proviso to Section 147(1), capped at INR 5 lakh for companies and INR 1 lakh for officers. The cost audit framework under Section 148 follows suit: appointment and procedural defaults attract graduated civil penalties capped at INR 2 lakh (company) and INR 50,000 (officer). If implemented, audit committees and company secretaries should update their compliance oversight frameworks accordingly.

7. Miscellaneous Procedural Defaults- A Legislative Clean-Up Across Multiple Sections: The Bill further decriminalises defaults across Sections 4 (name reservation), 99 (AGM default), 167 (acting despite disqualification), 186 (loan and investment defaults), 189 (register of contracts), 249, 392, 453, and 469. Each follows the same structural logic: fixed civil penalties with defined ceilings, removed criminal exposure, and proportionate officer liability. The cumulative effect is a cleaner, more predictable enforcement landscape across the statute.

III. Decriminalisation Under the LLP Act, 2008

The LLP Act is proposed to undergo a targeted but consequential enforcement restructuring, with particular relevance for fund managers, professional service firms, and alternative investment vehicles structured as LLPs.

1. Books of Account- Civil Adjudication Replaces Criminal Courts: Contraventions relating to the maintenance of books of account and financial statements under Section 34 are proposed to be decriminalised and converted to civil penalty via adjudication. Simultaneously, new provisos require Specified IFSC LLPs to maintain all records in permitted foreign currency. The combination means IFSC-domiciled fund vehicles face enhanced compliance obligations alongside reduced criminal exposure, a trade-off that reflects the Bill's broader policy balance.

2. Registrar Requisition- INR 10,000 Civil Penalty Replaces a Criminal Offence: The Bill proposes to replace the existing criminal offence for failing to comply with a Registrar requisition (other than a summons) with a civil penalty of INR 10,000. For LLPs, particularly AIFs and funds with multiple partners, this is a material reduction in regulatory risk for what was frequently a procedural default driven by administrative oversight rather than wilful non-compliance.

IV. The Adjudication Architecture: A Shift to Digital, Decentralised Enforcement

Decriminalisation is only meaningful if the adjudication infrastructure that replaces criminal courts is efficient, fair, and scalable. The Bill therefore refocuses on the design of the enforcement framework itself, introducing a deliberately layered adjudication architecture.

1. Expanded Jurisdiction of Adjudicating Officers- Bringing Resolution Closer to Business: The Bill proposes to lower the minimum rank of adjudicating officers to Assistant Registrar, which would significantly expand the number of available adjudication points and reduce enforcement centralisation. In parallel, it proposes to enhance the compounding jurisdiction of Regional Directors under Section 441 from INR 25 lakh to INR 1 crore, creating a layered enforcement pyramid. For companies operating across multiple ROC jurisdictions, this restructuring is intended to result in faster and more accessible resolution timelines once implemented.

2. Suo Motu Applications: Proactive Compliance Gets a Statutory Home: Among the more consequential procedural innovations proposed in the Bill is the introduction of suo motu applications under both the Companies Act (Section 454) and the LLP Act (Section 76A(1A)). If enacted, companies and their officers would be permitted to proactively approach adjudicating officers for determination of penalties before the issuance of a show‑cause notice. This would mark a material shift in enforcement culture, enabling voluntary compliance, reducing adversarial engagement, and offering particular utility in pre‑transaction due diligence exercises and IPO readiness reviews.

3. Recovery Officer Mechanism (New Section 454B)- Strengthening Civil Enforcement: The Bill further proposes the creation of a Recovery Officer mechanism—modelled on the framework under the Income Tax Act—to strengthen the enforceability of civil penalties. The contemplated powers include attachment and sale of movable and immovable property, seizure of bank accounts, and arrest for recovery of unpaid penalties. The proposal signals that decriminalisation is not intended to dilute consequences; rather, the civil enforcement framework is designed to be institutionally robust and coercively effective.

4. Settlement Mechanism (New Section 454C): Transactional Certainty Through Resolution: A statutory settlement mechanism is proposed to be introduced, enabling specified penalty contraventions to be resolved before a Specified Authority, with no further right of appeal. If implemented, this would be a significant development for companies seeking regulatory closure, particularly where unresolved compliance defaults impede M&A transactions, fundraising processes, or capital market activity. The proposed finality and non‑appealability of settlements are intended to incentivise early resolution over protracted dispute.

5. Mandatory Pre-Deposit Before Appeals (New Section 454D): Disciplining Dilatory Challenges: The Bill proposes to require a mandatory pre‑deposit of 10% of the penalty amount before an appeal can be entertained by the NCLAT, Regional Director, or the relevant Appellate Authority. This would align corporate enforcement procedures with established practice under tax and customs law. For large corporates that have historically used appellate remedies to defer enforcement outcomes, the proposal introduces a tangible cost to contesting penalties.

6. Transition Scheme for Pending Criminal Proceedings- The Clean Slate Provision: The Bill mandates that the Central Government notify a transition scheme for the withdrawal of pending criminal complaints relating to offences proposed to be decriminalised, and for the transfer of such matters to the civil adjudication framework under both the Companies Act and the LLP Act. Once notified, this scheme would be operationally critical for companies with pending compounding applications, show‑cause notices, or criminal proceedings tied to decriminalised offences, making it the most immediately impactful component of the proposed enforcement restructuring.

V. Director Liability Exposure: Reassessing the Risk Matrix

The proposed decriminalisation reforms would materially alter how director liability is assessed and advised upon in India. The Bill seeks to substantially reduce the risk of imprisonment for procedural defaults, a factor that has historically deterred experienced professionals from accepting independent director roles, particularly on mid‑sized, growth‑stage, or distressed company boards, across a broad spectrum of offences.

In place of criminal exposure, the framework would rely more heavily on civil monetary penalties which, while not nominal, are quantifiable, potentially insurable, and do not carry the reputational and professional consequences associated with criminal conviction. For CXOs and board members, this would necessitate a recalibration of several interlinked risk‑management tools, including the scope and limits of D&O insurance, indemnification provisions in director appointment documentation, internal compliance escalation mechanisms, and board‑level oversight of procedural compliance.

At the same time, the Bill proposes to introduce a new disqualification trigger with significant governance implications. Directors penalised for defaults relating to related‑party transactions under Section 188 would become ineligible for further directorships. This proposal creates an explicit link between civil penalties and continued access to board positions, ensuring that while imprisonment risk may be reduced, the civil enforcement regime retains consequences that extend well beyond monetary liability.

VI. Enforcement Efficacy

No reform of this scale is without trade-offs, and intellectual honesty demands that the risks be named plainly. The dilution of criminal consequences for a broad category of corporate defaults raises legitimate questions about deterrence, particularly in closely held companies, promoter-driven structures, and mid-sized enterprises where enforcement has historically been inconsistent.

Civil penalties, unless consistently and swiftly enforced, can become a predictable cost of non-compliance rather than a genuine compliance incentive. The Bill's structural answer to this risk, the Recovery Officer mechanism, mandatory pre-deposit requirements, the settlement framework, and the expanded adjudicating officer network, is architecturally sound. But it will depend entirely on institutional capacity, regulatory will, and the speed of adjudication to deliver its intended effect.

For India's corporate governance ecosystem to capture the full dividend of this reform, the adjudication infrastructure must demonstrate consistency, speed, and proportionality in practice. The legislative architecture is now in place. The test will be in its operation, and in whether enforcement agencies treat the civil regime with the seriousness that the criminal regime once commanded on paper, if not always in practice.

For Boards, CFOs, company secretaries, and general counsel, the practical conclusion is clear: decriminalisation is not a licence to deprioritise compliance. It is an invitation to manage compliance more intelligently with calibrated protocols, defined escalation thresholds, and a sharper understanding of where civil liability ends and criminal exposure begins. The line has moved. The obligation to know exactly where it now stands has not.

Disclaimer

The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.

For further queries or details, you may contact:

Ms. Kritika Krishnamurthy

Founding Partner

AK & Partners

info@akandpartners.in