How to Read the Corporate Laws (Amendment) Bill, 2026: Less Prosecution, More Accountability

The Corporate Laws (Amendment) Bill, 2026 (Bill No. 85 of 2026), introduced in the Lok Sabha on March 23, 2026, and referred to a Joint Parliamentary Committee (JPC) for scrutiny, proposes amendments to both the Companies Act, 2013, and the Limited Liability Partnership (LLP) Act, 2008. Spanning 107 clauses, it is an important update to India’s corporate regulatory framework since 2017.

Transitioning from procedural relief to governance accountability

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Under the Bill, routine procedural defaults, such as late filings, Annual General Meeting (AGM) non-compliance, and documentation lapses, are shifted from criminal penalties to a civil framework. At the same time, auditors, valuers, and directors with fiduciary duties face stricter oversight.

The relief track: From criminal risk to civil accountability

The Corporate Laws (Amendment) Bill redefines how procedural defaults are treated. Several offenses under the Companies Act and LLP Act that were previously subject to criminal prosecution, including imprisonment, are reclassified as civil violations with monetary penalties. These cover failures to meet Registrar requirements, AGM non-compliance, breaches involving inter-corporate loans, and lapses in maintaining books of account.

The enforcement mechanism is also revised. A new electronic In-House Adjudication Mechanism (IAM) replaces court proceedings for these offenses, shifting resolution to an administrative process.

Penalties follow a defined structure:

• INR 100,000 (US$1,070) for the initial contravention
• INR 500 (US$5.35) per day for continuing defaults
• Capped at INR 500,000 (US$5,352)

For directors, promoters, and Key Managerial Personnel (KMP), the impact is significant as procedural lapses no longer carry the risk of arrest, criminal records, or prolonged litigation.

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The Bill extends this approach through broader compliance simplifications:

• Small company classification thresholds increased:
  • Paid-up capital: from INR 100 million to INR 200 million
  • Turnover: from INR 1 billion to INR 2 billion
• CSR applicability threshold raised:
  • Net profit: from INR 50 million to INR 100 million
• Digital-first compliance measures introduced:
  • Virtual and hybrid AGMs permitted
  • Mandatory electronic document service for specified company classes

These changes bring more higher-income entities under lighter regulation and reduce the likelihood of procedural defaults.

Scrutiny track: Tightening oversight on auditors

Auditors and NFRA

A key gatekeeper reform concerns the National Financial Reporting Authority (NFRA).

The NFRA, established under the 2013 Companies Act as a monitoring body, would gain expanded enforcement powers that may issue directions, conduct inquiries, impose penalties, and debar auditors. Key proposed changes include:

• Auditors of prescribed company classes must register with the NFRA and file periodic returns, with penalties for non-compliance or false filings; and
• Outgoing auditors and audit firms are prohibited from providing non-audit services to the company, its holding company, or subsidiaries for three years after the audit engagement ends.

Valuers and IBBI

The Bill also strengthens oversight of valuers. The Insolvency and Bankruptcy Board of India (IBBI) is designated as the Valuation Authority, consolidating fragmented oversight under a single regulator. This is likely to increase compliance expectations in M&A, asset transfers, and fairness opinions. Corporate actions relying on registered valuers will need to account for incoming IBBI standards.

Directors and boards

An amended Section 164 introduces a “fit and proper” mandate, requiring boards to assess and document that every director meets prescribed criteria. Board composition shifts from commercial judgment to a compliance obligation. Two further provisions increase personal accountability:

• Related-party transaction (RPT) defaults under Section 188 now trigger directorship disqualification, extending liability to the individuals who approved the transactions; and
• A new Section 203A establishes a formal resignation process for non-director key managerial personnel

For foreign-invested companies with nominee directors on Indian subsidiary boards, the fit-and-proper requirements and RPT disqualification provisions warrant early review.

Decriminalization paired with heightened accountability

The relief and scrutiny elements are part of a single, integrated strategy. The Bill combines decriminalization of routine procedural defaults with tighter oversight of auditors, valuers, and directors, which are areas where failures carry broader governance risks.

This creates a tiered enforcement model: administrative penalties address procedural non-compliance, while strengthened regulators such as the NFRA and IBBI focus on gatekeeper accountability. Criminal prosecution is reserved for serious misconduct. The approach replaces a one-size-fits-all system with a targeted enforcement framework aligned with mature regulatory regimes.

For businesses, the risk lies in viewing these elements in isolation: focusing on compliance relief while overlooking heightened governance expectations, or preparing for stricter oversight without leveraging the procedural efficiencies introduced.

Who will be the most affected

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Listed companies will see the greatest impact. Expanded powers of the NFRA, mandatory auditor registration, restrictions on non-audit services, and stricter director eligibility requirements apply most directly to publicly listed entities. Audit committees and boards should expect tighter enforcement timelines once provisions are notified.

Mid-sized firms stand to benefit most from the relief measures. Decriminalization reduces disproportionate legal exposure for companies with limited compliance capacity, while higher thresholds for small company classification and CSR obligations ease regulatory burden for firms previously just above the cut-offs.

For foreign investors, a clearer distinction between procedural defaults and substantive governance failures makes risk assessment more predictable when evaluating Indian operations or planning market entry.

Key takeaways

The Bill is currently before a JPC for review, and individual provisions may be amended before final enactment. Subordinate legislation covering the rules, thresholds, and prescribed classes that determine each reform’s practical scope has not yet been drafted, and implementation will almost certainly be phased.

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Even so, the broader direction of the bill is clear. India is moving toward a framework that clearly separates procedural compliance lapses from serious governance failures and addresses them differently. Boards should proactively reassess director suitability and strengthen controls around related party transactions.

Audit committees should be reassessing auditor independence arrangements in light of the NFRA’s proposed expanded role. Compliance teams should be learning to distinguish technical lapses, which now carry administrative penalties, from governance-risk events, which carry sharper consequences than before.

(US$1 = INR 93.42)

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Parul Sharma

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