Corporate Laws Amendment Bill 2026: Key Changes & Impact

This article on the Corporate Laws Amendment Bill 2026 provides a comprehensive overview of the latest Companies Act amendments in India, covering key updates in corporate governance, compliance, CSR, and audit regulations. Businesses must stay updated with evolving corporate law changes in India to ensure compliance and strategic growth.

Executive Summary

The Corporate Laws (Amendment) Bill, 2026 — currently referred to a Joint Parliamentary Committee — proposes the most comprehensive overhaul of the Companies Act, 2013 in recent years. Drawing from the 2025 High Level Committee on Non-Financial Regulatory Reforms, the Bill targets four broad objectives:

Decriminalisation of minor procedural defaults, replacing criminal sanctions with civil penalties
Streamlining compliance through rationalised thresholds, digitalisation, and process simplification
Strengthening audit quality oversight through a significantly empowered NFRA
Modernising the legal framework to recognise new instruments, entities, and business realities

At Lal Ghai & Associates, we have analysed the Bill across all key domains and present below a structured commentary on the provisions of greatest practical significance to our clients.

1. Directors, KMPs & Board Governance

1.1 Independent Directors — Clarified Eligibility Criteria

The Bill introduces several welcome clarifications to the independence criteria under Section 149(6), addressing gaps that practitioners and companies have long flagged:

The disqualification period is now expressly extended to include ‘the current financial year’ in addition to the three preceding financial years, closing a drafting loophole.
The transaction threshold for legal/consulting firms associated with an Independent Director is made downward-flexible: the existing 10% floor of gross turnover may now be reduced by rules to a lower prescribed percentage, allowing tighter controls.
An ID must continuously fulfil eligibility conditions throughout their term, not merely at the time of appointment — codifying what was already good governance practice.
The cooling-off restriction (three years) is explicitly extended to apply to the company’s holding, subsidiary, and associate companies as well.
Service as Additional Director is now included in computing an ID’s tenure — ensuring that tenure limits cannot be gamed through prior appointment in that capacity.

1.2 Additional Directors & Appointment Restrictions

An Additional Director’s term is capped at the date of the next general meeting or three months from appointment, whichever is earlier.
A person whose appointment as director was not approved at a general meeting cannot be re-appointed by the Board as Additional Director, Alternate Director, or Casual Vacancy Director — without prior member approval. This prevents back-door reinstatement.

1.3 Director Disqualifications — Expanded and Clarified

The Bill significantly widens and clarifies the disqualification net:

Cross-referencing with Section 188 (related party transactions): post-decriminalisation of Sec 188 in 2020, the corresponding Sec 164 reference had not been updated. The Bill now aligns them — penalty for Sec 188 default will trigger director disqualification.
Professionals in dual roles are disqualified: auditors, secretarial auditors, cost auditors, registered valuers, and insolvency professionals who have served the company or its group entities in the preceding three years or in the current financial year cannot be appointed as directors.
A ‘fit and proper person’ criterion is introduced, with detailed criteria to be prescribed in rules.
Non-filing threshold reduced from three to two financial years — companies and their directors must be more diligent about statutory filings.

The auto-vacation of office under Sec 167(1)(a) upon Sec 164(2) disqualification — including for directors of the defaulting company itself — may leave certain companies headless. Boards should take immediate remedial action if any filing defaults are outstanding.

1.4 Board Meetings — Relaxation for Smaller Entities

Small companies, One Person Companies, and dormant companies need hold only one Board meeting per calendar year (down from one per half-year). This is a meaningful compliance relief.
Disclosure of interest under Sec 184(1) will be required only when there is a change, rather than at the first meeting of every financial year — a sensible rationalisation.

1.5 KMP Resignation — New Section 203A

A new provision governing resignation by whole-time non-director KMPs (CFO, CS) is introduced:
- The KMP may resign in writing; the Board must intimate the RoC. If the Board fails to do so, the KMP may directly notify the RoC with reasons.
- Resignation takes effect from the date of receipt by the company or the date specified in the notice.
The KMP continues to be liable for defaults occurring during their tenure even after resignation.

While the provision gives KMPs a clear exit mechanism, it creates a potential conflict with employment contract terms. KMPs should review their contracts carefully — the statutory right to resign does not override contractual notice obligations.

1.6 Secretarial Audit

Multi-disciplinary firms with a majority of Practising Company Secretaries (PCS) as partners are now permitted to undertake secretarial audits. This broadens the available professional resource pool.

1.7 Directors' Report — Enhanced Disclosures

Management must specifically address auditor observations relating to financial transactions, matters adversely affecting company functioning, and accounting maintenance.
The report must now disclose the Audit Committee’s composition and any instances where the Board rejected an Audit Committee recommendation, along with reasons.

2. Issuance, Buy-Back & Share Capital

2.1 Private Placement — Steeper Penalties

The maximum penalty for private placement offences is raised to Rs. 2 crores or the amount raised through the placement, whichever is lower. Companies must exercise heightened caution in structuring any private placement transaction.

2.2 Buy-Back of Shares — Greater Flexibility [Section 68]

Class-specific buy-back limits: The government may prescribe different maximum buy-back percentages for different classes of companies, deviating from the current uniform 25% cap.
Debt-free companies may now make up to two buy-back offers in a financial year, with a minimum six-month gap between the closure of the first and the opening of the second (reduced from the current minimum of one year).
The affidavit requirement for the solvency declaration by directors is removed — reducing procedural friction.

tax note

The Finance Act, 2026 rationalised the tax treatment of buy-backs — when read with the proposed structural flexibility, buy-backs may become an increasingly preferred mode of capital return.

2.3 IFSC Companies — Foreign Currency Capital [New Section 43A]

Companies set up in International Financial Services Centres (IFSC) may issue, convert, and maintain share capital in permitted foreign currencies, as regulated by IFSCA.
Financial statements, books of account, and records may also be maintained in the permitted foreign currency (unless IFSCA requires Indian rupee maintenance).
Fees, fines, and penalties under the Companies Act continue to be payable in Indian rupees.

This is a long-overdue reform enabling true internationalisation of IFSC entities.

2.4 Share-Linked Benefits Beyond ESOPs — SARs, RSUs & More

The Bill formally recognises instruments linked to share value — such as Stock Appreciation Rights (SARs) and Restricted Stock Units (RSUs) — across multiple provisions:

Preferential allotment to employees [Sec 62(1)(b)] is expanded to cover such instruments.
Allottees under such schemes are excluded from private placement limits [Sec 42(2)] — since shareholder approval is obtained.
Buy-back of such securities is enabled [Sec 68(5)(c)].

This aligns Indian corporate law with global executive compensation practices and provides clarity for compensation structuring.

2.5 Trust Registration in Register of Members [New Section 88(2A)]

Reviving a principle from the Companies Act 1956, the Bill provides that no notice of a trust shall be entered in the register of members. While likely FATF-driven to prevent beneficial ownership concealment, this may create practical challenges given the existing framework for beneficial interest under Section 89.

3. Dividend & IEPF

Dividends on shares already transferred to the IEPF Authority will also be transferred to IEPF — closing a gap in the existing framework.
Amounts relating to shares bought back and extinguished, which remain unpaid or unclaimed for seven years or more, must also be credited to IEPF.

Companies should proactively audit their unclaimed dividend and buy-back records to assess IEPF transfer obligations under the amended law.

4. Audit, Auditors & NFRA

4.1 Non-Audit Services — Extended Restriction

Prescribed classes of companies: auditors may not provide non-audit services to the company, its holding company, or subsidiaries — directly or indirectly.
This prohibition now extends for three years after the completion of the auditor’s term under Sec 139(2) — a significant post-tenure restriction.

4.2 Non-Attendance at General Meeting — Codified Penalty

An auditor’s failure to attend the AGM will now carry a specific penalty under Sec 147(2) — bringing clarity to a previously ambiguous provision.

4.3 Cost Audit Standards

The Central Government may now prescribe standards of cost accounting by rules, after considering recommendations from ICAI (Cost).

4.4 Empowering NFRA — Structural & Functional Overhaul

The Bill substantially restructures NFRA, transforming it into a more robust and independent regulator:

NFRA is constituted as a body corporate — a fundamental change giving it distinct legal standing.
The Chairperson gains general superintendence and executive authority.
NFRA may now directly impose penalties on and debar individual members or firms (not merely recommend to another authority).
Additional disciplinary tools: written warnings/censures, direction for additional professional training, or reference to the Central Government.
Non-compliance with NFRA orders or non-payment of penalties can result in criminal liability (imprisonment and further debarment).
Act of NFRA not invalidated due to vacancy, appointment defects, or procedural irregularities — giving it procedural robustness.

4.5 New Sections 132A and 132B — Auditor Registration & NFRA Fund

Mandatory registration details with NFRA before any audit appointment; periodic returns and filings with NFRA as specified.
Non-compliance: penalties of Rs. 25,000 minimum, up to Rs. 25 lakhs; wilful false information: up to Rs. 50 lakhs.
A dedicated NFRA Fund is created — funded by Central Government grants, fees, and other income — for meeting NFRA’s operational expenses.

5. Corporate Social Responsibility

Net profit threshold for CSR applicability under Sec 135(1) is doubled from Rs. 5 crores to Rs. 10 crores — reducing the compliance burden on mid-tier profitable companies.
The time limit for transferring unspent CSR amounts (ongoing projects) to the Unspent CSR Account is extended from 30 to 90 days (i.e., up to 29th June each year).
Companies with mandatory CSR spend up to Rs. 1 crore need not constitute a CSR Committee under Sec 135(9) — a welcome rationalisation.
The Central Government may exempt prescribed classes of companies from CSR compliance entirely, subject to conditions.

6. Schemes of Arrangement & Mergers

6.1 Multi-State Scheme Simplification

One of the most practically significant reforms: schemes of arrangement involving companies in multiple NCLT jurisdictions will no longer require separate proceedings before each Bench. A single NCLT — that of the transferee/resulting company — may dispose of the scheme. This eliminates the current practice of endless inter-bench coordination and delay.

6.2 Fast-Track Mergers [Section 233] — Reduced Approval Thresholds

Members: dual approval (majority in number + 75% in value), replacing the previous single-metric test.
Creditors: 75% approval in value (down from 90%) — making fast-track mergers more accessible.
The Regional Director in fast-track cases will refer matters to the NCLT of the transferee/resulting company only.
Demergers: a report from the Official Liquidator is no longer mandatory — reducing process overhead.

6.3 Treasury Shares — New Section 233A

A three-year sunset period is imposed: all existing treasury shares (held prior to commencement of CA 2013) will lose voting rights after three years.
Non-compliant treasury shares will be cancelled/extinguished and treated as capital reduction.
Penalty: Rs. 10,000 per day of continuing default for the company and every officer in default.

Action Point

Companies holding treasury shares should immediately identify such shares and plan for compliant disposal or cancellation within the sunset period.

7. Valuations — IBBI as Valuation Authority

IBBI is designated the Valuation Authority and will now grant certificates to Registered Valuers and Valuers’ Organisations, and impose penalties on them.
Valuers for company-law purposes must now be appointed by the Audit Committee (by resolution) — not just management.
IBBI receives expanded rule-making powers in the valuation domain.

This is a significant step towards professionalisation and independence of the valuation function. Companies should review their valuation appointment processes.

8. Digitalisation & Compliance Ease

8.1 Website & Digital Communication Mandates

Listed companies and unlisted public companies meeting prescribed thresholds must maintain a website, email address, and other communication modes.
Prescribed classes of companies must serve certain documents to members only electronically (with members retaining the right to request physical copies).

8.2 General Meetings — Physical, Virtual & Hybrid

AGMs and EGMs may now be held in fully physical, fully virtual, or hybrid mode — as prescribed.
However, an AGM must be held in physical mode at least once every three years — maintaining a mandatory in-person touchpoint.
For fully virtual EGMs, the notice period is reduced from 21 clear days to 7 days (or such other period as may be prescribed).
Members requisitioning a meeting may request it be held in hybrid mode — and this request will be binding on the company.

8.3 Small Companies — Charge Registration Relief

Prescribed small companies get 120 days (up from 60 days) to register a charge after its creation, on payment of prescribed ad valorem fees.

8.4 Auditor Appointment Relief for Small Companies

Prescribed classes of small companies, upon fulfilment of conditions, may be exempt from mandatory auditor appointment under Chapter X.

9. Decriminalisation, Penalties & Enforcement

9.1 Rationalised Penalty Structure

The Bill replaces ranges of penalties with fixed amounts in many provisions — providing greater certainty. The key changes are tabulated below:

Section	Action	Existing Provision	Proposed Change
Sec 4(5)(ii)	Incorrect name application	Up to Rs. 1 lakh	Rs. 50,000
Sec 128(6)	MD/WTD/CEO fails Sec 128 compliance	Rs. 50K – Rs. 5 lakh	Rs. 5 lakh (listed); Rs. 50K (others)
Sec 166(8)	Director violates Sec 166	Rs. 1 lakh – Rs. 5 lakh	Rs. 5 lakh (listed); Rs. 2 lakh (others)
Sec 189	Non-maintenance of register of contracts	N/A	Rs. 2 lakh
Sec 446B	Lesser penalty for small companies	Company- Up to 50% of penalty (max Rs. 2 lakh) Officer in default- Up to 50% of penalty (max Rs. 1 lakh)	Company- Up to 50% of prescribed penalty (max Rs. 2 lakh) Officer in default- Up to 50% of penalty (max Rs. 1 lakh)

9.2 Decriminalisation of Specific Offences

Multiple provisions — including Sec 147(1) (auditor contraventions), Sec 166 & 167 (director duties and vacation) — have criminal fines replaced with civil monetary penalties. This reduces the risk of criminalisation for bona fide procedural lapses.

9.3 Adjudication Infrastructure — Strengthened

Assistant Registrars added as additional adjudicating officers.
Additional Appellate Authority (not below Joint Director rank) may be notified by CG.
A Recovery Officer for penalty enforcement [Sec 454B], with powers of attachment and sale of movable/immovable property.
A ‘Specified Authority’ for settlement proceedings [Sec 454C] — introducing a quasi-settlement mechanism for penalty contraventions.
Fraud threshold for mandatory 6-month imprisonment increased from Rs. 10 lakhs to Rs. 25 lakhs.

9.4 Compounding — Enhanced RD Powers [Section 441]

The Regional Director’s compounding jurisdiction is extended to offences involving fines up to Rs. 1 crore (up from the earlier limit).

10. Miscellaneous Provisions

10.1 Small Company Definition — Expanded

Upper limit for paid-up share capital raised from Rs. 10 crores to Rs. 20 crores.
Upper limit for turnover raised from Rs. 100 crores to Rs. 200 crores.

This expansion brings a significantly larger cohort of companies into the ‘small company’ category, entitling them to reduced compliance obligations across multiple provisions.

10.2 Striking Off Defunct Companies [Section 248]

Additional grounds introduced: no significant accounting transactions in preceding 2 years and current FY; non-filing of financial statements or annual returns for two consecutive preceding financial years.
Revival application within 3 years of strike-off: before RD.
Revival after 3 years but within 20 years: before NCLT.
The offence of filing an improper strike-off application is decriminalised — penalty reduced from Rs. 1 lakh (criminal fine) to Rs. 50,000 (civil penalty).

10.3 Financial Year Realignment

Companies that had obtained NCLT approval to maintain a non-March financial year may now realign to the 31 March year-end — either through an NCLT-approved application or on commercial consideration. This reduces regulatory complexity for such entities.

10.4 Professional Declaration at Incorporation

The professional declaration [Sec 7(1)(ba)] at the time of incorporation is now required only if the professional was actually engaged in the formation — removing a formalistic requirement for uninvolved professionals.

10.5 Central Government Directions

The CG may now issue guidelines, circulars, and directions to clarify the intent of provisions or lay down procedural requirements — with or without expert consultation. This gives the government greater flexibility to address interpretational gaps without legislative amendment.

10.6 SFIO Investigation — Source Protection

The source of information that triggered an SFIO investigation need not be disclosed — protecting informants and encouraging whistleblowing.

Our Perspective

The Corporate Laws (Amendment) Bill, 2026 represents a genuine and well-considered attempt to modernise India’s corporate law architecture. The rationalisation of penalties, digitalisation of compliance, and empowerment of NFRA signal a maturing regulatory philosophy — one that balances accountability with ease of doing business.

That said, several provisions — including the auto-vacation of director office, the KMP resignation mechanism, and the trust-register exclusion — merit careful deliberation during the JPC process. We will continue to monitor the Bill’s progress and update our analysis accordingly.

For advisory, compliance reviews, or specific queries on any of the above provisions, we encourage our clients to reach out to the team at Lal Ghai & Associates.

This bulletin is prepared for general informational purposes. It does not constitute legal or professional advice. Readers should seek specific advice before acting on any matter covered herein.

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