NEW DELHI: The government is set to decriminalise two-thirds of the Companies Act as it looks to do away with jail term in over 40 sections out of the 66 where compounding is permitted.Besides, the ministry of corporate affairs, which is pushing the change, is also seeking to lower the penalty for small companies, sources told TOI. The move is expected to benefit around eight lakh of the 11 lakh registered Indian companies which have a turnover of up to Rs 2 crore and a paid-up capital of Rs 50 lakh or less.Through the process of compounding, a company or its executives can avoid prosecution by paying penalty.The steps are being discussed by the Company Law Committee, headed by corporate affairs secretary Injeti Srinivas, which is also looking at stringent deterrents for violators, without putting them in jail, sources said. For instance, some restrictions may be imposed on accessing funds or transfer of registered office in case a company violates a provision.With the committee, which also has Kotak Mahindra Bank managing director Uday Kotak and lawyer Shardul Shroff as members, expected to finalise its first report over the next few weeks, the government is drawing up plans to introduce a bill to amend the law in the winter session of Parliament, due to start next month.Sources said the move was in line with PM Narendra Modi's call to respect wealth creators and usher in ease of living. "We are not touching those sections where compounding is not allowed. Only serious offences will have the provision of a jail term as the idea is to make life simpler for companies," said a source.Once the amendments are approved by Parliament, civil offences will be dealt through MCA's in-house mechanism led by the registrar of companies, with a handful to be decided by the courts.A few months ago, the government had amended the law to reduce the number of provisions that attract jail term from 81 to 66.The Company Law Committee was constituted following an uproar over the amendments to Companies Act, which provided for jail term in case of violations related to spending on corporate social responsibility. While it had initially identified 20-22 sections where jail term was to be dropped, the list was expanded later.