On March 23, 2026, the government introduced a Bill in the Lok Sabha that gives MCA the power to deactivate your Director Identification Number. The moment your DIN is deactivated, you automatically vacate every directorship you hold — across every company, not just the defaulting one.
The Corporate Laws (Amendment) Bill, 2026 proposes sweeping changes to both the Companies Act, 2013 and the LLP Act, 2008. Some of these changes will save you money (21 offences decriminalised, small company threshold doubled). Others could cost you your seat on the board (DIN deactivation, fit-and-proper criteria, RPT violation disqualification).
Here are the seven provisions every director, founder, and CFO needs to understand — and prepare for — before this Bill becomes law.
1. DIN Deactivation Framework — Section 154 Overhaul
This is the headline change. The Bill introduces a comprehensive framework for verification, deactivation, cancellation, surrender, and restoration of Director Identification Numbers under Section 154.
Under the current law, your DIN stays active unless you are disqualified. Under the proposed amendment, MCA can deactivate your DIN if you fail to periodically verify your particulars. And the consequence is immediate: a director whose DIN is deactivated or cancelled becomes ineligible to function as a director.
What this means in practice: If MCA deactivates your DIN — say, because you missed the verification deadline or submitted incorrect details — you automatically vacate your office in every company where you serve as director. Not just the company in default. Every single one.
Action required: Start treating DIN maintenance like a compliance obligation, not an administrative formality. Set calendar reminders for verification deadlines. Ensure your registered email, address, and phone number are current on the MCA portal.
2. “Fit and Proper” Criteria for Directors — Section 164 Expansion
Section 164 currently lists specific disqualification grounds (undischarged insolvent, convicted of an offence, non-filing defaults). The Amendment Bill expands this by adding a “fit and proper” test that the Board must assess for every director.
The criteria will be prescribed by the government through rules. While the exact parameters are not yet defined, this gives MCA the power to set subjective standards beyond the current binary disqualification triggers.
The Bill also expands disqualification to include auditors, valuers, and insolvency professionals — bringing all key gatekeepers under the same standard.
Action required: Founders and promoters who also serve as directors should review their personal compliance history, pending litigation, and any regulatory interactions. Once rules are prescribed, companies will need to formally assess and document that each director meets the criteria.
3. Director Disqualification for RPT Violations — Section 188
Here is a change that should worry founders of fast-growing companies. Under the current law, related party transaction violations under Section 188 attract criminal prosecution. The Bill decriminalises this — replacing prosecution with a ₹2 lakh monetary penalty.
But there is a sting: if you are penalised for Section 188 defaults, you become disqualified from holding directorship. So while you avoid jail, you lose your board seat.
Why founders should care: Startup founders regularly transact with related entities — payments to a co-founder’s consultancy, office rent from a promoter-owned property, software licences from a sister concern. If these transactions are not approved through proper Board or shareholder resolution as required by Section 188, the penalty now carries an automatic directorship disqualification.
Action required: Audit all related party transactions for the current financial year. Ensure every RPT has the required Board resolution (and shareholder approval for prescribed thresholds). Use the Compliance Cost Estimator to budget for a proper RPT compliance review.
4. Small Company Threshold Doubled — ₹20 Crore Paid-Up Capital, ₹200 Crore Turnover
The Bill doubles the small company threshold:
| Parameter | Current Threshold | Proposed Threshold |
|---|---|---|
| Paid-up share capital | ₹10 crore | ₹20 crore |
| Turnover | ₹100 crore | ₹200 crore |
This is good news for a large number of mid-sized companies. Small companies enjoy several compliance relaxations: simplified annual return filing (MGT-7A instead of MGT-7), exemption from cash flow statement in financial statements, fewer board meeting requirements, and reduced penalty amounts for defaults.
Action required: Check if your company falls below the new thresholds. If you are currently filing MGT-7 but would qualify as a small company under the revised limits, you can switch to the simplified MGT-7A form once the Bill is enacted — saving both compliance cost and professional fees.
5. Decriminalisation of 21 Offences — E-Adjudication Instead of Criminal Courts
The Bill shifts 21 minor and technical offences from criminal court proceedings to an electronic e-adjudication platform. This means monetary penalties only — no risk of imprisonment for procedural defaults.
Additionally, the fraud threshold for mandatory minimum six-month imprisonment increases from ₹10 lakh to ₹25 lakh. This means fraud cases involving amounts below ₹25 lakh will no longer carry mandatory imprisonment.
This is a significant relief for directors who have faced the threat of criminal prosecution for what are essentially compliance delays or procedural oversights. The shift to e-adjudication also means faster resolution — no more years-long criminal proceedings for a late filing.
Action required: If you or your company currently face prosecution for any of the 21 offences being decriminalised, speak to your legal advisor about the transition provisions once the Bill becomes law. Pending cases may be converted to monetary penalties.
6. Auditor Independence — 3-Year Non-Audit Services Ban
Prescribed classes of auditors will be prohibited from providing non-audit services to the company, its holding company, or subsidiary for three years after their audit tenure ends.
This also tightens who can be appointed as an auditor: a firm can be appointed as statutory, cost, or secretarial auditor only if the majority of its partners practising in India are professionally qualified for such appointment.
Action required: Review your current auditor relationship. If your statutory auditor also provides tax advisory, management consultancy, or other non-audit services, plan for a transition. After their audit tenure ends, they cannot provide these services for three years.
7. Enhanced Board Reporting — Audit Committee Recommendations
Board reports must now include two new disclosures:
- Explanations for audit observations: If the auditor flags qualifications or adverse remarks, the Board must explain them in the annual report — not just acknowledge them.
- Audit committee rejection details: If the Board rejects any recommendation made by the audit committee, the Board report must disclose the committee’s composition and give specific reasons for the rejection.
This makes it harder for boards to quietly override audit committee concerns. Shareholders and regulators will now see exactly when and why the Board disagreed with its own audit committee.
Action required: Ensure your audit committee minutes are detailed and recommendations are formally documented. When the Board disagrees, record the specific reasoning — it will now be part of the public annual report.
Other Notable Changes in the Bill
Beyond the seven headline provisions, the Bill also introduces:
- ESOP expansion: The Act now recognises Restricted Stock Units (RSUs) and Stock Appreciation Rights (SARs) alongside ESOPs — a welcome change for startup equity compensation.
- CSR threshold change: Net profit threshold for CSR applicability changes to ₹10 crore (or such other sum as may be prescribed), and the unspent CSR transfer deadline extends from 30 to 90 days.
- Vacancy timeline: Default under Section 164(2) (three consecutive years of non-filing) leads to vacancy of office in every company after six months from the date of disqualification, or upon expiry of tenure — whichever is earlier.
- LLP trust conversions: Specified trusts registered with SEBI or IFSC Authority can now convert into LLPs.
- Audit exemptions: Companies meeting prescribed conditions may be exempted from the requirement to appoint a statutory auditor altogether.
Key Takeaways
- Verify your DIN details now — the new Section 154 framework means a missed verification could deactivate your DIN and vacate all your directorships.
- Audit every related party transaction — Section 188 violations now carry director disqualification, not just criminal prosecution.
- Check if you qualify as a small company — the doubled threshold (₹20Cr paid-up, ₹200Cr turnover) could significantly reduce your compliance burden and cost.
- 21 offences are moving to e-adjudication — if you face prosecution for procedural defaults, prepare for conversion to monetary penalties.
- Plan your auditor transition — the 3-year non-audit services ban means your current auditor may need to stop advisory work.
- Document Board decisions properly — audit committee rejection reasons must now be disclosed in the annual report.
Sources & References
- PRS India — The Corporate Laws (Amendment) Bill, 2026 — Full bill text and legislative tracking
- Corporate Laws (Amendment) Bill, 2026 — Full Text (PDF) — Official bill text as introduced in Lok Sabha
- SCC Online Blog — Strengthening Corporate Governance: Highlights of the Bill
- Company Suggestion — Director-specific amendments analysis
- EY India Regulatory Alert — Corporate Laws Amendment Bill 2026
Frequently Asked Questions
What is the Corporate Laws Amendment Bill 2026?
The Corporate Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on March 23, 2026. It proposes amendments to the Companies Act, 2013 and the LLP Act, 2008. Key changes include a DIN deactivation framework, “fit and proper” criteria for directors, doubling of small company thresholds, decriminalisation of 21 offences, and director disqualification for related party transaction violations.
What happens if my DIN is deactivated under the new Bill?
Under the proposed Section 154 framework, DIN deactivation means you become ineligible to function as a director. You automatically vacate your office in every company where you hold a directorship. The Bill provides for verification, deactivation, cancellation, surrender, and restoration of DINs.
Will my company qualify as a small company under the new thresholds?
If your company’s paid-up capital is below ₹20 crore AND turnover is below ₹200 crore, you qualify. Small companies enjoy reduced compliance: simplified annual returns (MGT-7A), exemption from cash flow statements, and reduced board meeting requirements.
Which offences are being decriminalised?
21 minor and technical offences are moving from criminal courts to electronic e-adjudication with monetary penalties only. The fraud threshold for mandatory imprisonment also increases from ₹10 lakh to ₹25 lakh. Section 188 related party violations become civil penalties (₹2 lakh) instead of criminal prosecution.
When will this Bill become law?
The Bill must pass both Houses of Parliament and receive the President’s assent. Given the government’s majority and broad support for ease-of-doing-business reforms, passage during the current session is expected. Companies should prepare now rather than wait for final notification.
Is Your Board Composition Ready for These Changes?
Check your director appointments, related party transactions, and compliance status before the Amendment Bill becomes law.
Check Board Composition Free | Talk to CS Sapna Malpani
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About the Author: CS Sapna Malpani is a Practising Company Secretary based in Bangalore, specialising in corporate compliance, secretarial audit, and startup advisory. She helps private companies, funded startups, and IPO-bound firms stay compliant with MCA, SEBI, and FEMA requirements.
Contact CS Sapna Malpani | [email protected]