Executive Summary
RELIEF TRADED FOR ACCOUNTABILITY
The Bill decriminalizes minor procedural defaults and strengthens enforcement against serious ones. For a standalone small business the net effect is relief. For a listed company, a large group, or the Indian subsidiary of a multinational, the net effect is increased regulatory exposure.
The Corporate Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on 23 March 2026 and referred to a 31-member Joint Committee. That Committee reported on 3 August 2026, endorsing the Bill with clause-wise modifications and a number of additions of its own — including an inward re-domiciliation regime.
Commentary to date has focused on decriminalization. That characterization is accurate but incomplete. The Bill moves two things in opposite directions: it lowers the cost of procedural failure and raises the cost of governance failure.
For a large company the result is therefore a re-pricing of compliance risk rather than a reduction in it — fewer criminal exposures, faster civil enforcement, a properly funded regulator, and a Board’s report carrying expanded explanation obligations.
The timing is significant in international terms. In January 2026 the United Kingdom abandoned its Audit Reform and Corporate Governance Bill, ending a decade-long effort to replace the FRC with a stronger regulator, on the stated ground of reducing burdens on business. In the same month the SEC approved a PCAOB budget cut of 9.4% and an accounting support fee cut of 18.4%, and installed an entirely new Board. India is strengthening its audit regulator in the same year in which the two most influential regimes are scaling theirs back — and doing it inside a Bill whose stated purpose is ease of doing business.
The position in brief
We read the Bill as a trade-off rather than a concession. Government has bought procedural relief for the long tail of Indian companies with a stronger, faster, better-resourced supervisory apparatus over the companies that matter to the capital markets. On balance we think that is the right trade, and a more coherent one than either the UK’s retreat or the US’s retrenchment.
Two cautions apply. First, the substance lies in the Rules rather than in the Bill: the scope of the non-audit services bar, the class of private companies losing statutory audit, the format of Board explanations and the buy-back classes are all delegated. Second, the enforcement machinery takes effect before the administrative capacity to operate it is in place.
THE SITUATION
1
TWO VECTORS WITHIN A SINGLE BILL
The compliance function does not reduce in size; it shifts to earlier stages of the reporting and governance cycle.
Read on its own, the first vector is deregulation. Around twenty offences across the two Acts convert from criminal fine to civil penalty. Compounding by a Regional Director rises from INR 25 lakh to INR 1 crore. Small-company ceilings have doubled. Virtual and hybrid general meetings have become permanent, subject to a physical-or-hybrid meeting at least once in three years with no more than two years between them.
Read alongside the second vector, the position is different. NFRA incrementally acquires the attributes of a real regulator. The independence perimeter around auditors widens. And personal accountability sharpens: INR 20 lakh on the managing director, whole-time director in charge of finance, or CFO of a listed company for books-of-account contraventions where the contravention relates to section 128(1) or 128(5) – otherwise INR 5 lakh for a listed company and INR 50,000 for others, and a lapsed Director with a lapsed Identification Number vacates office rather than merely blocking appointment.
Exhibit 1 —The two vectors, and what they mean for a large Indian company
VECTOR ONE — the cost of procedural failure falls
Perimeter shrinks
- Small-company limits: INR 20cr capital / INR 200cr turnover
- CSR only above INR 10cr net profit
- Audit exemption for prescribed private companies (s.139(12))
Courts step back
- RD compounding limit up to INR 1cr
- Settle before the penalty order (s.454C)
- Appeals on a 5% pre-deposit
Doing business gets easier
- Virtual / hybrid AGMs and EGMs made permanent
- Single NCLT bench per scheme
- Fast-track merger approval falls to 75%
- Rectification, refund and appeal routes added
VECTOR TWO — the cost of governance failure rises
NFRA becomes a regulator
- Body corporate with own Fund and fees
- May direct, inquire and penalise
- Recovery and settlement powers
- May initiate prosecution via s.439
- Bounded regulation-making power
Independence rules widen
- Specified non-audit services barred at prescribed companies
- One-year cooling-off after the audit ends
- Auditor barred from board for 2 years
- Independence must hold continuously
Accountability gets personal
- INR 20L penalty on MD / CFO (listed)
- A lapsed DIN vacates the director’s office
- Board explains every audit observation and AC override
THE NET EFFECT
For a small private company, the Bill is a genuine reduction in compliance load.
For a listed or large company, it is a re-pricing — not a reduction — of compliance risk: Fewer criminal exposures, faster civil enforcement, a named regulator, and a board report that must explain itself.
The compliance function does not get smaller. It moves upstream.
2
SCOPE OF APPLICATION
Most of the relief in this Bill is unavailable to listed companies, large groups and the Indian subsidiaries of multinationals.
Each of the headline reliefs — small-company status, halved penalties under s.446B, exemption from CSR and exemption from statutory audit — is available only to companies falling within a defined class. Eligibility, rather than the size of the revised thresholds, determines which companies benefit, and one long-standing proviso to section 2(85) governs that eligibility.
The determinative proviso to section 2(85)
Section 2(85) has always included a proviso that excludes from the small-company definition any holding company or subsidiary company, any section 8 company, and any company governed by a special Act. The Bill does not amend this proviso. Therefore raising the s.2(85) ceilings of paid-up share capital to INR 20 crore and turnover to INR 200 crore does not affect a company within a group structure, including every Indian subsidiary of a multinational, irrespective of its size.
The same exclusion applies to s.446B, which halves the penalties payable by one person companies, small companies, start-ups and producer companies. A company within a group structure remains liable for the full penalty.
| Entity Classification | Applicable Provisions | Non-Applicable Provisions |
|---|---|---|
| A listed company | All obligations in the second vector apply:
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| An unlisted public company | Most of the second vector applies:
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| A standalone private company | The full first vector applies:
| Little of the second vector, unless it is a body corporate within NFRA’s notified scope |
| A private company in a group, including MNC subsidiary | Procedural relief applies:
| Small-company status, and with it s.446B relief — because of the s.2(85) proviso. Audit exemption remains open but is conditional on Rules yet to be written |
| An IFSC company or LLP | IFSC-specific provisions apply:
| Nothing is automatic — existing IFSC entities must convert their capital before issuing further capital |
THE Uniqus VIEW
The most common planning error we expect to see over the next twelve months is a group treating this Bill as a compliance-cost reduction and reallocating the budget. For anything inside a group, the arithmetic runs the other way. The reliefs are scoped out; the obligations are not. A finance function that reads the headlines and stands down its company-secretarial spend will discover the mistake at the first adjudication, and by then the recovery machinery in s.454B will be operating.
THE SUPERVISORY SHIFT
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NFRA – EXPANDING OVERSIGHT
The Committee left NFRA’s institutional architecture intact while curtailing its discretion.
Eleven new sections turn NFRA from an oversight body performing functions through prescribed divisions into a body corporate that holds property, sues in its own name, funds itself, directs auditors, holds inquiries, imposes penalties and recovers them.
| Where India stands today | What the Bill, as reported, does | What it changes for business |
|---|---|---|
| NFRA’s legal status and funding | ||
| NFRA operates without body-corporate status, functioning through divisions prescribed by the Central Government |
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| NFRA can give directions to auditors | ||
| No power to issue binding directions to auditors outside a disciplinary proceeding | Power to direct auditors in the public interest, or in the interest of investors and creditors, but only after an enquiry in the prescribed manner (s.132C) | A supervisory tool that operates before misconduct is proved. Audit committees should expect directions to surface in auditor communications |
| Stronger investigation and penalty process | ||
| Penalty powers exercisable only on proven professional or other misconduct | Standalone inquiry and adjudication machinery with power to summon and examine on oath; appeal to NCLAT within 45 days (s.132D) | Faster resolution and a defined appellate route. Recovery runs through the s.454B Recovery Officer rather than as arrears of land revenue |
| NFRA vs. ICAI — who gets to investigate? | ||
| Overlap with ICAI resolved only where NFRA has already commenced an investigation | With the condition removed, NFRA has exclusive jurisdiction over matters in its remit and ICAI cannot run a parallel proceeding at any stage | A single regulator, a single proceeding and a single record |
| NFRA’s power to make regulations | ||
| The Act gives NFRA no express power to make regulations and can be challenged as beyond its powers |
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The Committee’s amendments are as significant as what the Bill granted them. It dropped the six-month prison term for not paying NFRA penalty, as inconsistent with the Bill’s decriminalization logic. It limited “professional or other misconduct” to audit matters in NFRA’s remit. It sent the manner of investigation, recovery of penalties and levy of fees back to Central Government rules. And it removed the carve-out that would have let NFRA issue regulations without consultation.
Exhibit 2 — What the Bill grants NFRA, and where the Joint Committee drew the line
| What the Bill grants Eleven new sections, ss.132A–132K | What the Bill grants Discretion pulled back to Central Government rules |
|---|---|
| 1. Body corporate status — perpetual succession, common seal, power to hold property and to sue and be sued (s.132(1A)) | 1. Imprisonment deleted. Six months for non-payment of an NFRA penalty, removed as inconsistent with the Bill’s own decriminalization logic |
| 2. Its own money — an NFRA Fund of grants, fees and investment income (s.132B), plus power to levy fees on auditors (s.132-I) | 2. Misconduct confined to audit matters within NFRA’s jurisdiction, functions or regulatory remit — protecting ICAI’s statutory autonomy |
| 3. Power to direct auditors in the public interest, or the interest of investors and creditors (s.132C) | 3. Directions require an enquiry first. s.132C may be exercised only after an enquiry in the prescribed manner — a Committee insertion |
| 4. Standalone inquiry and penalty machinery with power to summon, enforce attendance and examine on oath; appeal to the NCLAT within 45 days (s.132D) | 4. Recovery civilized. “As if it were an arrear of land revenue” replaced by the s.454B Recovery Officer route; arrest and detention deleted |
| 5. Insulation — civil courts ousted (s.132E) and good-faith immunity for the Authority and its officers (s.132F) | 5. Rules, not regulations. The manner of investigation, the levy of fees and the terms of NFRA’s employees all returned to Central Government rules |
| 6. Regulation-making power with laying before Parliament, mandatory prior public consultation and triennial review (ss.132J, 132K) | 6. No urgency escape hatch. The proviso allowing NFRA to make regulations without consultation was removed in its entirety |
HOW THIS LOOKS ELSEWHERE
Exhibit 3 — India builds its audit regulator up in the same year its peers step back
The timing is what makes this Bill interesting
India
NFRA Building up
- The regulatory framework strengthens the NFRA (National Financial Reporting Authority) as a statutory regulator, giving it corporate status, an independent Fund and the ability to levy fees on auditors. Its powers are expanded to issue directions, conduct standalone inquiries, examine individuals on oath, impose penalties and recover dues.
- NFRA proceedings also take precedence over parallel ICAI disciplinary proceedings, establishing a clearer “one regulator, one proceeding, one record” framework.
- Its disciplinary regulations are subject to prior public consultation, triennial review and laid in the parliament.
United Kingdom
FRC / ARGA Standing down
- In January 2026 the Government confirmed it would not proceed with the Audit Reform and Corporate Governance Bill, abandoning the plan to replace the FRC (Financial Reporting Council) with ARGA (Audit and Reporting Governance Authority) .
- The stated reasons were the priority of reducing administrative burden and a judgment that reform was “less pressing” than before.
United States
PCAOB Standing down
- On 22 January 2026 the SEC approved a 2026 PCAOB (Public Company Accounting Oversight Board) budget of $362.1 million — down 9.4% — with the accounting support fee down 18.4% to $306.0 million, and chair and member compensation cut by 52% and 42%. A new Board was announced eight days later.
United States
DESIGN NOTE PCAOB
PCAOB rules require SEC approval before they take effect. India has chosen the parallel discipline of laying NFRA regulations before Parliament, with mandatory public consultation and triennial review — a more transparent gate than the UK ever gave the FRC. Boards should not read the UK’s retreat or the US’s retrenchment as a signal about India’s direction of travel.
THE Uniqus VIEW
In our view the Committee struck the correct balance. A regulator with statutory permanence, its own money and a clear jurisdictional boundary will serve audit quality better than with wider but contested powers. Narrowing NFRA’s jurisdiction makes its authority durable.
The unresolved question is capacity. NFRA now has registration, direction, inquiry, penalty, recovery and prosecution powers across a very large population of body corporates
4
AUDITOR INDEPENDENCE — A PROHIBITED-SERVICES REGIME
India has tightened its list of prohibited services, while comparable regimes have moved away from lists altogether.
Since 2013, section 144 has stopped auditors from providing eight named non-audit services to any company. The Bill goes further for a prescribed class of companies still to be defined in the Rules: more services are off-limits, the restriction covers their holding company and subsidiaries, and it continues for a year after the audit ends — a post-term restriction also.
| Where India stands today | What the Bill, as reported, does | What it changes for business |
|---|---|---|
| Non-audit services provided by auditors | ||
| Eight named non-audit services barred for every company, with no fee cap and no post-term restriction | For a prescribed class, a further bar on prescribed non-audit services to the company, its holding company or subsidiary — the Committee replaced a blanket prohibition with a defined list. | Certainty replaces a sweeping prohibition, but the scope now depends entirely on the Rules, which the Committee has directed MCA to confine to public interest and high-risk entities. “If you are the statutory auditor, you cannot provide these specified services to the audit client. However, for the additional restrictions, we still need to see the Rules issued by MCA, because the exact list will depend on those Rules.” |
| What happens after the auditor leaves? | ||
| No restriction once the auditor’s term ends | The bar continues for one year after the auditor completes its term under s.139(2) — reduced by the Committee from the three years originally drafted | Groups planning an auditor transition must map the outgoing firm’s advisory pipeline a year ahead, not just at rotation. Example: If Audit Firm A’s appointment ends on 31 March 2027, it may still be prohibited from providing certain specified services to that former audit client until 31 March 2028. |
| “Management services” → “Management functions” | ||
| “Management services” is a prohibited category with contested boundaries | Replaced with “management functions” | A narrower, more defensible line — advisory that informs management is distinguishable from advisory that performs it. |
| Who can become a partner in an audit firm? | ||
| Firms appointed as auditors need a majority of India-practicing partners qualified for appointment | The proposal originally contemplated that every partner of an audit firm would need to be registered with an Indian statutory professional body. That proposal has now been removed. Instead, for a firm to be appointed as a statutory auditor, it needs to have a majority of its India-practicing partners qualified to be appointed as auditors. | No net change to the eligibility test. The Committee removed a proposed restriction rather than creating a new freedom: the existing majority-of-India-practising-partners requirement survives intact. Multi-disciplinary partnerships remain governed by ICAI’s own regulations, which this Bill does not touch. Firms should not read the dropped proposal as widening what a statutory auditor may look like. |
| Can auditors become directors of their clients? | ||
| Auditors and valuers face no bar on joining a client’s board | Auditors, secretarial auditors, cost auditors, registered valuers and insolvency professionals barred from becoming directors of a company if they have been associated with the company for two preceding financial years plus the current year (s.164(1)(j)) | Board succession planning changes. The former audit partner route to the audit committee closes in short term |
HOW THIS LOOKS ELSEWHERE
United States. SOX §201 bars nine service categories; §202 requires audit committee pre-approval of every permitted non-audit service; §206 imposes a one-year cooling-off before audit personnel join a client in a financial reporting oversight role. The gate is the audit committee, not the list.
United Kingdom and EU. The FRC’s (Financial Reporting Council) Revised Ethical Standard replaced the prohibited list with a short permitted-services whitelist for public interest entities from March 2020, extended to “other entities of public interest” from December 2020, and retained the EU-derived 70% cap on non-audit fees measured against a three-year average of statutory audit fees.
The gap. India is tightening a list of prohibited services, whereas the UK has moved to a list of permitted services. It provides neither a fee cap nor a statutory requirement for audit committee pre-approval of permitted services.
THE Uniqus VIEW
The proposed approach of maintaining a list of prohibited non-audit services may provide clarity, but it may not be the most effective way to protect auditor independence. Service offerings continue to evolve, and a fixed list can become outdated or may be avoided by structuring new services differently. The Committee’s move from prohibiting “any non-audit services” to prohibiting “such non-audit services as may be prescribed” is therefore a step in the right direction, but additional safeguards may be needed.
5
REDEFINING THE AUDIT LANDSCAPE -INDIA’S FIRST STATUTORY AUDIT EXEMPTION
Universal statutory audit has been a fixed feature of Indian company law since 1956. The Bill creates the first exception to it, on narrow terms.
Every company incorporated in India, of any size, must today appoint a statutory auditor. Few comparable jurisdictions impose such a requirement. New s.139(12) creates an exception to it, and the Committee narrowed that exception before reporting to the House.
| Where India stands today | What the Bill, as reported, does | What it changes for business |
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| Statutory audit exemption | ||
| Statutory audit is mandatory for every company without exception | Prescribed classes of private companies may be exempted — narrowed by the Committee from “companies” generally, so no public company can be exempted |
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| What happens to references to “audited financial statements”? | ||
| Statutory references to “audited financial statements” assume an audit always exists | A drafting fix: where a company is exempt, references to “audited” financial statements are read as references to its financial statements, so the rest of the Act still works | Drafted so that the exemption remains workable in practice. Lenders, investors and group reporting requirements will continue to call for assurance |
| Increase in the ceiling of “small company” | ||
| Small company ceilings: prescribable up to INR 10 crore paid-up capital and INR 100 crore turnover | Ceilings doubled to INR 20 crore and INR 200 crore (s.2(85)) |
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| Who can be an internal auditor? | ||
| Internal auditors must be chartered accountants, cost accountants or such other professional as the Board decides | Company secretaries added expressly (s.138, new Clause 43A) | The Bill expands the pool of professionals who can perform internal audit, but competence and suitability will become more important when selecting the internal auditor. |
| Directors’ disclosure of interest | ||
| A director discloses his interests, including shareholding, on first attending the Board, again at the first Board meeting of every financial year, and whenever they change (s.184(1)) | A director discloses his interests, including shareholding, on first attending the Board, again at the first Board meeting of every financial year, and whenever they change (s.184(1)) | A director discloses his interests, including shareholding, on first attending the Board, again at the first Board meeting of every financial year, and whenever they change (s.184(1)) |
HOW THIS LOOKS ELSEWHERE
United Kingdom. From financial years beginning on or after 6 April 2025, a company qualifies for audit exemption by meeting two of three limits — annual turnover £15 million, assets total £7.5 million, 50 employees – the first increase since 2016.
Singapore. The “small company” audit exemption has applied since 2015 on a two-of-three test: revenue and total assets each not exceeding S$10 million, and not more than 50 employees.
The point. Indian position remains conservative. It adopts, approximately a decade later, a position its peer jurisdictions already reached, and does so on more restrictive terms, since public companies are excluded altogether.
THE Uniqus VIEW
We support the proposed audit exemption for private companies, but it should not be viewed simply as a cost-saving measure.
- Audit exemption does not mean assurance is no longer needed. Lenders, investors, acquirers and group auditors may still require financial assurance.
- The exemption could create a gap between what the law requires and what stakeholders expect.
- Boards of exempt companies should therefore decide what level of assurance they want to retain, rather than assuming that no statutory audit means no assurance is required.
The exemption may reduce regulatory burden, but companies should continue to assess their assurance needs based on lenders, investors, transactions and group reporting requirements.
THE GOVERNANCE SHIFT
6
EXPANDED BOARD REPORTING AND ACCOUNTABILITY
The Committee has asked MCA to consider prescribing Board-level oversight and verification of material AI-generated financial information – a direction we have not seen expressed in comparable regimes..
The Bill significantly increases the Board’s responsibility for financial reporting and governance. The Board’s Report would move beyond a compliance document and require management to explain auditor observations, Board overrides and potentially the use of AI in financial reporting.
| Where India stands today | What the Bill, as reported, does | What it changes for business |
|---|---|---|
| Auditor observations | ||
| The Board explains qualifications and adverse remarks in the auditor’s report | The Board must explain every observation or comment of the auditors on financial transactions having an adverse effect, and any qualification, reservation or adverse remark on maintenance of accounts (s.134(3)(fa)) |
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| Audit Committee recommendations | ||
| Companies disclose the composition of the Audit Committee, but there is generally no specific requirement to explain when the Board rejects an Audit Committee recommendation. | Statutory disclosure of audit committee composition and reasons wherever the Board did not accept a committee recommendation (s.134(3)(pa)) |
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| AI and automated financial reporting | ||
| There is no specific requirement for the Board to explain or certify the use of AI or automated tools in financial reporting. | The Committee directs that the Rules prescribe Board-level oversight, verification and accountability for material AI-driven or digitally generated financial information, and consider certification |
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| Independent Director independence | ||
| An independent director declares compliance with the independence criteria on appointment and then once a year |
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| DIN Compliance | ||
| A lapsed or unverified DIN blocks appointment | A deactivated DIN means the director cannot continue to function; cancellation vacates the office (s.152(3), 154) |
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| Change to CSR Requirements | ||
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HOW THIS LOOKS ELSEWHERE
United Kingdom. The 2024 Corporate Governance Code introduced a board declaration on the effectiveness of material internal controls for financial years beginning on or after 1 January 2026 — a declaration, on a comply-or-explain basis, with no auditor opinion behind it.
United States. SOX 404 requires management’s assessment and, for accelerated filers, an auditor attestation on internal control over financial reporting.
Where India already sits. Section 143(3)(i) has required an auditor’s opinion on internal financial controls over financial reporting since 2015. On controls assurance India is closer to the US than to the UK — and the Bill now layers a narrative explanation duty on top of an existing attestation regime.
The international comparison reinforces the broader direction of the Bill: moving from auditor-focused assurance toward greater Board-level accountability for financial reporting, internal controls and governance decisions.
The AI-related recommendation takes this a step further by potentially extending that accountability to the use of technology in the financial reporting process.
THE Uniqus VIEW
The proposed AI oversight requirement is one of the more forward-looking elements of the Bill. While the detailed requirements will depend on the Rules, the Joint Committee’s recommendation signals a clear direction toward Board-level accountability for material AI-generated financial information.
Finance functions should therefore start preparing now. Any use of AI or automated tools in financial close, reconciliations, estimates or disclosure preparation should be supported by three basic controls:
- What did the AI/tool do?
- Who reviewed and validated the output?
- What evidence exists of that review?
These are fundamentally internal control questions and can be addressed today within existing COSO and Section 143(3)(i) frameworks, even before the detailed Rules are issued.
THE COMMERCIAL SHIFT
7
CAPITAL, CURRENCY AND CORPORATE MOBILITY
The structural changes in the Bill that could reshape capital, investment and cross-border transaction structures.
Significant business-focused changes in the Bill with the aim to make GIFT City (International Financial Services Centres (IFSC)) more attractive for global businesses and investment funds, make corporate restructurings easier, and allow certain foreign companies to relocate to India without having to recreate their corporate structure from scratch.
| Where India stands today | What the Bill, as reported, does | What it changes for business |
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| Foreign Currency Share Capital for IFSC Companies | ||
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| Re-domiciliation of Foreign Companies into India | ||
| A foreign company wishing to move to India must incorporate afresh and transfer assets |
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| Trust-to-LLP Conversion for Investment Funds | ||
| Alternative Investment Funds (AIFs) structured as trusts cannot convert into LLPs. | Specified trusts registered with SEBI or IFSCA may convert into LLPs (new Fifth Schedule) on three-fourths investor consent; periodic rather than event-based filing for regulated LLPs (s.57A) |
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| Faster Mergers and Restructurings | ||
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| Legacy Treasury Shares | ||
| Pre-2013 schemes left some transferee companies holding their own shares through trusts, with no exit |
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The remainder of IFSC package
Alongside the headline changes, the Bill introduces several practical changes for IFSC LLPs and investment funds that will determine how easily the new framework can be used. These changes are intended to make the IFSC/LLP framework more practical, flexible and internationally aligned, particularly for investment funds and other financial-services businesses.:
- Foreign-currency accounting for IFSC LLPs: Partner contributions must be accounted for and disclosed in a permitted foreign currency, and books, financial statements and records follow the same currency — with IFSCA able to permit rupee books where flexibility is required. Filings may be made in the permitted foreign currency; statutory fees, fines and penalties stay in rupees.
- Existing entities must transition, not just new ones. IFSC LLPs formed before commencement must convert partners’ contributions from rupees to a permitted foreign currency within the period and manner IFSCA specifies, in consultation with the Central Government — the mirror of the rule that an existing IFSC company must convert its capital before issuing further capital. Conversion mechanics, and the Ind AS 21 functional-currency and translation consequences, should be planned in advance rather than addressed on implementation.
- Naming requirements apply. Every Specified IFSC LLP must use the suffix “International Financial Services Centre LLP” — the Committee allowed the short form “IFSC LLP” as an alternative after stakeholders pointed out the practical burden of a five-word suffix.
- Lighter reporting, subject to one exception. SEBI- and IFSCA-regulated LLPs move from event-based to annual reporting of partner changes — but the Committee confirmed that changes in designated partners remain a 30-day filing under s.9. Fund administrators should note that the move to annual reporting does not extend to changes in designated partners.
- AIFs are the intended user. The Committee expressly recommended that MCA include Category-I and Category-II Alternative Investment Funds within the prescribed class of LLPs when the Rules are framed — read together with the trust-to-LLP conversion schedule, this is a deliberate build-out of the LLP as India’s fund vehicle.
The home-jurisdiction condition on re-domiciliation
Section 393B carries a condition of greater practical significance than the IFSC restriction: the migrating company must be authorized to transfer out by the law of its home jurisdiction. That condition determines which structures can use the route. Cayman, the BVI, Mauritius, Delaware and the DIFC and ADGM all permit outward continuation — structures there can use Chapter XXIIA. Singapore does not permit outward re-domiciliation at all. The single most common offshore holding jurisdiction for Indian founders therefore falls outside the reach of this chapter; a Singapore holding company must still use a merger, share swap or NCLT inbound-merger route to relocate to India.
The Committee saw the larger gap too: it recommended that the Central Government notify a comprehensive framework covering taxation, capital gains, stamp duty, transfer and vesting, and continuation of rights in coordination with the relevant ministries and regulators. Until that framework exists, Chapter XXIIA provides the corporate-law mechanism without the corresponding tax treatment — usable, but not yet capable of being priced.
HOW THIS LOOKS ELSEWHERE
Singapore. Inward re-domiciliation has been available since 11 October 2017 under what is now Part 10A of the Companies Act 1967, across the whole jurisdiction, subject to a two-of-three size test. Singapore permits no outward re-domiciliation. India’s route is narrower — IFSC only — but the mechanism is identical.
United Kingdom. A scheme of arrangement needs 75% in value and a majority in number, with court sanction as the fairness safeguard. India is converging on the same threshold, but replaces the court’s fairness role with a statutory buy-out right for dissenting shareholders in the fast-track route.
Delaware. Appraisal rights under DGCL §262 have long given dissenting stockholders a judicially determined fair value. India’s new fast-track exit is closer to this model than to anything previously in the Companies Act.
Treasury shares. The UK has permitted them since 2003 and Singapore permits up to 10%. India does not permit them, which is why s.233A extinguishes the legacy holdings rather than legitimize them.
THE Uniqus VIEW
In our view the IFSC package is one of the most commercially significant parts of the Bill. Allowing foreign-currency share capital and accounting removes a key structural disadvantage for GIFT City, while the proposed re-domiciliation framework could provide Indian businesses with a simpler route to bring offshore structures into India.
However, the benefit is currently limited because re-domiciliation is available only for IFSC entities. This makes the reform primarily a financial-services measure rather than a broader corporate-mobility framework.
- Opportunity: Consider expanding re-domiciliation beyond IFSC in the future to support wider corporate mobility and make India more attractive for global businesses.
- Competitive positioning: GIFT City now offers an inward re-domiciliation route, while Singapore does not permit outward re-domiciliation.
- What to watch: Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) allow movement in both directions, making them important jurisdictions to monitor as India develops its corporate-mobility framework.
Chapter XXIIA is a significant first step, but its long-term impact will depend on whether India eventually expands re-domiciliation beyond IFSC and addresses the related tax, stamp duty and regulatory implications
ENFORCEMENT
8
ENFORCEMENT WITHOUT COURTS
From Criminal Prosecution to Stronger Civil Enforcement.
Decriminalization is effective only if civil penalties are collected. The Bill reduces criminal consequences for certain defaults but strengthens the Government’s ability to impose and recover financial penalties. In other words, the approach moves from “prosecution” to “penalty and recovery.”
| Where India stands today | What the Bill, as reported, does | What it changes for business |
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| Stronger recovery of penalties | ||
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| Settlement before a penalty is imposed | ||
| No mechanism to settle a contravention before an order is passed |
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| 5% deposit for appealing a penalty | ||
| No pre-deposit requirement to appeal a penalty |
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| Higher limits for compounding and fraud | ||
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| Easier correction of filings and refunds | ||
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Where does the financial impact land
Decriminalization is often read as leniency. On the amounts relevant to a finance function, several exposures increase and several shift from the company to a named individual.
| Exposure | Today | Under the Bill, as reported |
|---|---|---|
| Books of account — s.128(6), on the MD, WTD (finance) or CFO personally | Fine of INR 50,000 to INR 5 lakh | Penalty of INR 5 lakh (listed) or INR 50,000 (other) — rising to INR 20 lakh and INR 5 lakh where the contravention relates to s.128(1) or (5) |
| Buy-back contraventions — s.68(11) | Fine of INR 1 lakh to INR 3 lakh on the company and on each officer in default | Penalty of INR 25 lakh (listed) or INR 2 lakh (others); officer in default INR 5 lakh (listed) or INR 2 lakh (others) |
| Prospectus contraventions — s.26(9) | Fine of INR 50,000 to INR 3 lakh | Fixed penalty of INR 2 lakh |
| Director’s duties — s.166 | Fine of INR 1 lakh to INR 5 lakh | Penalty of INR 5 lakh (listed) or INR 2 lakh (others), with criminal liability retained only for undue gain under s.166(5), plus a court power to order disgorgement |
| Failure to comply with an NFRA order or pay an NFRA penalty — s.132(4A) | No equivalent provision | Fine of INR 1 lakh to INR 5 lakh (individual) or INR 5 lakh to INR 25 lakh (firm), plus further debarment — imprisonment deleted by the Committee |
| Legacy treasury shares not cancelled — s.233A(3) | No equivalent provision | INR 10,000 per day, uncapped, on the company and every officer in default |
HOW THIS LOOKS ELSEWHERE
United States. The SEC has long combined administrative proceedings, civil money penalties and settlement without admission — the model India is now approximating for company-law defaults.
United Kingdom. Companies House gained civil financial penalties under the Economic Crime and Corporate Transparency Act 2023, moving the registrar from a filing repository to an enforcement body.
India-Key difference. India’s proposed settlement mechanism is more similar to a tax settlement process than the US SEC model. Settlements would generally be final, without appeal and without admission of liability, and there is currently no requirement to publicly disclose settlement outcomes.
THE Uniqus VIEW
For CFOs and General Counsel, this is one of the most operationally relevant parts of the Bill. The key shift is from criminal prosecution to more certain financial enforcement. While decriminalization reduces the risk of prosecution for certain defaults, stronger recovery mechanisms and higher penalties mean that companies cannot treat compliance breaches lightly.
We would recommend that settlement orders be published in an anonymized form. This would give companies and advisers greater visibility into how penalties are being applied and help create a more predictable compliance environment. Without such transparency, the framework may achieve faster resolution but lose some of its deterrent and guidance value.
THE MULTINATIONALS IN INDIA
9
CONSIDERATIONS SPECIFIC TO GLOBAL GROUPS
A multinational’s Indian subsidiary is subject to most of the Bill’s obligations while qualifying for few of its reliefs. Ten of the changes create exposure that global groups frequently under-manage.
Most commentary on this Bill is written for Indian corporates. A US, European, Japanese or Gulf group with Indian entities reads it differently, because the reliefs are limited by group status while the obligations apply irrespective of it.
1. The headline relief does not extend to group entities
The proviso to s.2(85) excludes any holding or subsidiary company from small-company status. Doubling the ceilings to INR 20 crore and INR 200 crore therefore has no effect for an MNC’s Indian entity, irrespective of its size. The same exclusion carries into s.446B, so penalties are not reduced for group companies. Where the Bill grants relief by reference to size, a group entity should assume that it does not qualify..
2. Books-of-account location now carries personal penalty exposure
Section 128(6) today carries a fine of INR 50,000 to INR 5 lakh on the managing director, whole-time director in charge of finance or CFO. The Bill converts it to a penalty and — critically — sets a higher tier of INR 20 lakh for listed companies and INR 5 lakh for others where the contravention relates to s.128(1) or s.128(5).
Those two sub-sections are precisely where global groups are exposed. Section 128(1) governs where and how books are kept, including in electronic mode; the Rules made under it require that books maintained electronically be backed up on servers physically located in India, on a daily basis, including where the service provider is situated outside India. Section 128(5) governs the eight-year preservation obligation.
A group running a single global ERP instance hosted abroad, with an offshore shared service centre performing Indian record-keeping, falls directly within this provision. The exposure is on a named individual, not the company — usually the India finance head or a regional CFO who may not be resident in India.
3. A lapsed DIN can invalidate board composition
Today an inactive Director Identification Number blocks appointment. Under s.152(3) read with new s.154, a director whose DIN is deactivated cannot continue to function, and cancellation vacates the office. New s.154(2) also creates a standing obligation to submit verification information at prescribed intervals.
Foreign directors on Indian subsidiary boards are the population most likely to miss annual DIN verification, because the filing sits with a local company secretary and the director never sees it. A missed verification can now put board composition, quorum and the validity of board acts in question — including approvals of financial statements. In our experience this is the most under-managed administrative risk in Indian subsidiary governance, and the Bill converts it from an inconvenience into a legal defect.
4. The Indian advisory footprint of the global auditor narrows
Section 144 already reaches services rendered “directly or indirectly”, and the Explanation extends that to the audit firm’s parent, subsidiary and associate entities and to any entity using its brand. The new prescribed-services layer, plus the one-year post-term restriction, therefore constrains what the Indian member firm of a global network can do for an Indian entity whose group auditor sits in that network — including after an India-level auditor change.
Groups that centralize advisory procurement globally should map this at network level, not at Indian-entity level, and should sequence auditor transitions with the one-year tail in mind.
5. The audit exemption is conditional and of limited value to group entities
Most MNC India entities are private limited companies, so s.139(12) could in principle reach them, subject to conditions the Rules have yet to set. Planning on the basis of that exemption would nonetheless be premature. Group audit scoping under ISA 600 (Revised), SOX 404 component testing, lender covenants and transfer pricing documentation all assume audited financials. The construction rule reads statutory references “as if there is no requirement for audit” — the construction rule does not bind the group auditor, lenders or an acquirer.
6. A statutory route now exists for financial-year realignment
The existing first proviso to s.2(41) lets a holding, subsidiary or associate of a foreign-incorporated company apply to the Central Government for a different financial year for consolidation purposes. The Bill adds a further proviso permitting an application to realign the financial year to the period ending 31 March of the following year — and opens that route beyond foreign-parent consolidation to any company or body corporate on commercial considerations.
For groups that have been maintaining two sets of period-end numbers, this is the first clear statutory mechanism for transition. The Joint Committee expressly described it as benefiting Indian companies with foreign parents and global joint ventures.
7. Board composition mechanics tighten
Three changes are significant at group level. Additional directors and casual-vacancy appointees may now hold office only until the next general meeting or three months, whichever is earlier — expatriate executives appointed between AGMs will need faster regularization. A person whose appointment was not approved in a general meeting cannot be re-appointed by the Board without member approval. And the independent-director cooling-off now extends to the holding, subsidiary and associate companies, so group-wide relationships must be tracked, not just relationships with the Indian entity.
8. Confirm which holding jurisdictions can use the new route
For groups holding Indian operations through an intermediate offshore entity, Chapter XXIIA’s home-law condition determines eligibility: Cayman, BVI, Mauritius, Delaware, DIFC and ADGM structures can migrate into the IFSC; Singapore structures cannot, because Singapore law does not authorize outward transfer. Regional treasury and holding reviews that assumed “re-domiciliation is now available” should be re-run jurisdiction by jurisdiction — and any migration model should hold the tax and stamp-duty line items open until the comprehensive framework the Committee has asked for is notified.
9. Entity rationalization becomes materially less costly
Multi-entity Indian footprints built up through acquisitions are expensive to simplify. A single NCLT bench at the transferee’s jurisdiction removes the multi-state filing problem; the fast-track threshold at 75% of value present and voting makes s.233 usable where 90% of total shares was not achievable; and the Committee has pressed for a 60-day deemed-approval timeline at the Registrar or C-PACE. Holding-to-wholly-owned-subsidiary mergers were already inside the fast-track route — the change is that other combinations now become available.
10. A statutory website and email obligation, with scope left to Rules
Clause 21 inserts a section 12A requiring a prescribed class of companies to maintain a website, an email address and other communication modes in the manner prescribed, and to intimate those particulars and any change to the Registrar. The Joint Committee endorsed the Ministry’s limited-class of companies approach but doubted that every other company should escape even a basic email requirement; it accepted the clause unmodified, leaving scope to the Rules. For a wholly-owned Indian subsidiary the exposure is the particulars, not the website: many run on the parent’s domain and mailbox, so a rebrand decided abroad can become a Registrar filing trigger.
Ten checks for a global group’s Indian entities
- DIN status for every director, including non-residents. Confirm verification filings are current and assign an owner who is not the director.
- Where the books physically sit. Confirm daily backup on servers in India for electronically maintained books, including where the provider or shared service centre is offshore.
- Who is named under s.128(6). Identify the individual carrying personal exposure and confirm they know it.
- Network-level non-audit services map. Track advisory provided by any entity in the group auditor’s network, not only by the Indian audit firm.
- Auditor transition tail. Model the one-year post-term restriction into any planned change of Indian auditor.
- Assurance strategy if audit exemption arrives. Decide now what the group auditor, lenders and tax authorities will require regardless of Indian statute.
- Financial-year alignment. Assess whether the new s.2(41) route removes a dual-reporting burden.
- Additional-director population. Regularize expatriate appointments within the new three-month window.
- Entity rationalization shortlist. Re-run the merger case for dormant and duplicative Indian entities under the 75% threshold and single-bench route.
- Website and email of record. Indian entity to have communication particulars of its own rather than the parent’s, and assign an owner for intimating changes to the Registrar.
HOW THIS LOOKS ELSEWHERE
The comparison worth drawing. In the US and UK, subsidiary governance is largely a group-policy matter; statute rarely attaches personal consequences to a foreign director of a local entity. India does — through DIN, through s.128(6) and through s.166. Group governance frameworks written for a US or European parent frequently under-weight this.
Where India is now more demanding. An Indian subsidiary of a global group already faces an auditor opinion on internal financial controls under s.143(3)(i) — an obligation with no UK equivalent and, for non-accelerated filers, no US equivalent either. The Bill adds a Board explanation duty on top.
THE Uniqus VIEW
Global groups consistently treat Indian subsidiary compliance as an administrative function delegated to a local secretarial provider. This Bill makes that allocation untenable, because the consequences now attach to individuals and can invalidate corporate acts rather than merely attracting a fine. We recommend a one-time health check across the Indian entities covering:
- DIN status and director verification
- Location and backup of books of account
- The individuals responsible under s.128(6)
- Non-audit services provided across the global audit network
- Tenure and regularization of additional directors
This exercise can help identify and address potential compliance gaps before they result in financial penalties or questions around the validity of corporate actions. In our experience the exercise takes weeks rather than months, and in most groups it identifies at least one issue requiring correction.
WHAT REMAINS OPEN
10
THE WATCH LIST
The Committee report sets the direction, but the final rules are still being written.
The Joint Committee report is not the final law. It was adopted by the Committee at its 25th sitting on 31 July 2026 and presented to both Houses on 3 August 2026, but Parliament can still make changes, and the detailed Rules have not yet been written. Therefore, the following areas need to be monitored
| Open item | Why it matters | What we expect |
|---|---|---|
| Scope of the s.144 non-audit services bar |
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| Conditions for the s.139(12) audit exemption |
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| Format of Board explanations under s.134 |
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| AI-related financial information |
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| Fee cap and pre-approval for permitted non-audit services |
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| Treasury shares during the disposal window |
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| Publication of settlement outcomes |
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| NCLT capacity and inter-bench transfer |
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| Tax and stamp duty on re-domiciliation |
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| Mechanics of the dissenting-shareholder exit |
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What Happens Next
With the Joint Committee’s Report tabled, the Bill as reported by the Committee now goes back to Parliament for consideration and passage, incorporating the Committee’s recommended amendments unless Parliament decides otherwise.
WHAT TO DO
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PRIORITIES FOR THE FIRST NINETY DAYS
The Rules carry the substance. The window to shape them is open now, and it is the cheapest intervention available.
Very little in this Bill requires a company to wait. The consultation on the Rules is live, the records exercises can be done today, and the structural questions — auditor transition, entity rationalization, IFSC structuring — all have long lead times. What follows is what we would do, in what order, and who we would give it to.
Exhibit 4 — From report to readiness: the first ninety days
Day 0–30
Establish the facts and get into the consultation
Respond to the Rules
Four consultations decide the substance: s.144 scope, s.139(12) exemption conditions, s.134 reporting format and s.68 buy-back classes. Industry submissions carried real weight at Committee stage.
CFO AND GENERAL COUNSEL
Run a legacy shareholding audit
Identify any shares held by the company in its own name or through a trust from a pre-2013 scheme. The three-year clock starts on commencement and the penalty is uncapped at INR 10,000 a day.
COMPANY SECRETARY AND CONTROLLER
Open a live DIN and independence register
Periodic DIN verification is now a statutory obligation and continuing independent-director eligibility is a standing condition. Assign an owner who is not the director.
COMPANY SECRETARY
Day 31–60
Quantify the exposure and rebuild the processes
Map the auditor’s advisory pipeline
For any group approaching rotation, model the one-year post-term restriction at network level, not firm level, before the tender opens.
AUDIT COMMITTEE CHAIR AND CFO
Re-paper the Board’s report
Build the process that captures every auditor observation and every audit committee recommendation the Board declined, with reasoning, contemporaneously rather than in April.
COMPANY SECRETARY AND CONTROLLER
Name the individual under s.128(6)
Identify who carries the INR 20 lakh or INR 5 lakh personal exposure, confirm they know it, and verify daily backup of electronic books on servers in India.
CFO · HEAD OF IT
Day 61–90
Re-run the structural decisions the Bill has changed
Put AI into the controls conversation
Inventory where models or agents touch the financial close, reconciliation, estimation or disclosure drafting, and evidence the human review. Answerable today under COSO and s.143(3)(i).
CONTROLLER AND HEAD OF INTERNAL AUDIT
Re-test the IFSC and entity structure case
Foreign-currency capital and accounts, plus inbound re-domiciliation, change the arithmetic for structures routed through Singapore, Mauritius or the DIFC.
CFO AND HEAD OF TAX
Reopen shelved restructurings
A 75% threshold, a single NCLT bench and a dissenter exit make fast-track mergers viable for structures that failed the 90% test.
CFO · GENERAL COUNSEL
Exhibit 5 — From report to readiness: where the decisions actually get made
| Now | Enactment | Rules | Commencement | +3 years |
|---|---|---|---|---|
| JPC report tabled 3 Aug 2026 | Passage, assent, then notification | The Bill delegates heavily — most of the substance lands here | Staged: different dates for different provisions | s.233A deadline for legacy treasury shares |
The window that matters is the one before the Rules are drafted
- Which companies fall inside the non-audit services bar and what counts as a prohibited service (s.144)
- Which private companies lose the statutory audit requirement, and how “audited” is read thereafter (s.139(12))
- Which audit observations the Board must actually explain – and how AI-generated reporting is to be verified (s.134)
- Which companies may buy back twice a year, and up to what share of capital and free reserves (s.68)
Ten questions your audit committee will ask
- Which of these provisions actually apply to us, and which are scoped out because we are a group company?
- Which individual in this company carries personal exposure under s.128(6), and do they know it?
- Are all our directors’ identification numbers current and verified, and who owns that filing?
- If our auditor rotates, what advisory work does the one-year restriction stop — at network level or firm level?
- Do we hold any legacy shares in our own name or through a trust from a pre-2013 scheme?
- What is our process for explaining every auditor observation in the Board’s report, and does it run through the year?
- Where has this Board declined an audit committee recommendation in the last two years, and how was it recorded?
- Where does AI touch our financial reporting today, and what evidence do we hold of human review?
- If a subsidiary becomes exempt from statutory audit, what assurance do we retain, and who decided that?
- What have we submitted, or what will we submit, on the draft Rules — and by when does the window close?
12
CROSS-BORDER IMPLICATIONS — US GAAP, IFRS AND IND AS
The Bill does not amend accounting standards, but several reporting consequences follow from it.
This is a company-law Bill, not an accounting one. But a statute that changes the currency of share capital, extinguishes shares by deemed capital reduction, creates a route for a foreign company to become an Indian one, and permits realignment of the financial year cannot avoid touching the financial statements. Following consequences are worth flagging to a group reporting team.
Where the consequence lands
Functional currency — Ind AS 21 / IAS 21
What preparers should do
An IFSC entity maintaining capital and books in a permitted foreign currency must still determine functional currency on the substance of its primary economic environment. The statutory currency of account and the functional currency are not the same question, and a mismatch will drive translation adjustments rather than resolve them.
Existing IFSC entities converting rupee capital to a permitted foreign currency should model the translation and any resulting reclassification within equity before the conversion, not after. The same analysis applies to a Specified IFSC LLP converting partner contributions.
Where the consequence lands
Equity-linked pay — Ind AS 102 / ASC 718
What preparers should do
Recognizing instruments linked to the value of the share capital of a company under ss.42, 62 and 68 aligns Indian company law with what Ind AS 102 and ASC 718 already required. Groups with US-parented plans should be able to issue in India the same instrument they issue elsewhere.
Two cautions: the statutory text does not use the terms “RSU” or “SAR” — those appear in the Notes on Clauses and in the Committee’s discussion — and the Ministry declined to extend s.62(1)(b) to cash-settled SARs, which continue to carry liability classification and remeasurement.
Where the consequence lands
Group reporting calendars — s.2(41)
What preparers should do
The new proviso creates an application route to realign the financial year to a period ending 31 March of the following year, available on commercial considerations and not only for consolidation with a foreign parent.
Groups that have been maintaining two sets of period-end numbers should assess whether a one-off realignment removes a permanent reconciliation — and should plan the transition-period financial statements, which will be of unequal length.
Where the consequence lands
Capital and EPS — Ind AS 33 / IAS 33
What preparers should do
Cancellation of legacy treasury shares under s.233A is a deemed reduction of capital outside s.66. Preparers should expect share-count and EPS presentation consequences, and should not assume the deemed-reduction route dispenses with disclosure.
Where the consequence lands
Re-domiciliation — first-time adoption
What preparers should do
A company transferring its registration into the IFSC under Chapter XXIIA becomes an Indian company with its corporate history intact — ss.368 to 370 apply mutatis mutandis, so property vests and proceedings continue. But the reporting framework changes.
Whether the entity is a first-time adopter of Ind AS, and what the date of transition is, should be settled before the application is filed, not after registration.
