The much-awaited Companies Bill, 2008 has been
introduced in the Lok Sabha.
Minister of Corporate Affairs, Shri Prem Chand Gupta introduce the Bill to consolidate and amend the
law relating to companies. Two days ago, i.e., on 21.10.2008 Shri Gupta had withdrawn
the Companies (Amendment) BIll, 2003 which was introduced
in the Rajya Sabha on 7.5.2003
as the said Bill was not in tune with the present day requirements of corporates
in India.
The Companies Bill, 2008 is intended
to modernize the structure for corporate regulation in India and represents a major reform statement
by the Government to promote the development of the Indian corporate sector through
enlightened regulation.
The comprehensive
revision of the Companies Act, 1956 was taken up by the Ministry since not only
had the number of companies in India expanded from about 30,000 in 1956 to above
7 lakhs today, the Indian corporate sector had also
transformed itself in a manner that was unimaginable even a decade ago.
Today, Indian companies have expanded and grown into global entities, continuously
entering into and bringing new activities into the fold of the Indian economy.
In doing so, they are emerging internationally as efficient providers of a wide
range of goods and services while increasing employment opportunities at home.
At the same
time, there is a requirement to enable corporate regulation in an effective and
efficient manner with reasonable costs of compliance so that Indian companies
are competitive in attracting investment for growth.
The
review and redrafting of the Companies Act, 1956 was taken up by the Ministry
of Corporate Affairs on the basis of a detailed consultative process. A `Concept
Paper on new Company Law’ was placed on the website of the Ministry on 4th August,
2004. The inputs received were put to a detailed examination
in the Ministry. The Government also constituted an Expert Committee on Company
Law under the Chairmanship of Dr. J.J. Irani on 2nd
December 2004 to advise
on new Companies Bill. The Committee submitted its report to the Government on
31st May 2005.
Detailed consultations were also taken up with various Ministries, Departments and Regulators.
The Bill was thereafter drafted in consultation with the Legislative Department
of the Central Government.
The Companies Bill, 2008 seeks to enable
the corporate sector in India to operate in a regulatory environment
of best international practices that foster entrepreneurship, investment
and growth.
The Bill reinforces shareholders
democracy, facilitates e-Governance in company processes, recognizes
the liability of Boards, directors and senior management personnel of companies,
provides for a new scheme for penalties and punishment for non compliance
or violation of the law, harmonizes corporate regulation with action by sectoral
regulators, incorporates a new framework for mergers and amalgamations
of companies and provides an extensive Insolvency Code based on the latest
principles recommended by the United Nations Commission on International Trade
Law (UNCITRAL).
Briefly, the Bill provides for :-
(i) The basic principles for all aspects of internal governance
of corporate entities and a framework for their regulation, irrespective of their
area of operation, from incorporation to liquidation and winding up, in a single,
comprehensive, legal framework to be administered by the Central Government.
In doing so, the Bill also seeks to harmonise the Company
law framework with the sectoral regulation;
(ii) articulation of shareholders democracy with protection
of the rights of minority stakeholders, responsible self-regulation with
adequate disclosures and accountability. Reduction of Government control
over internal corporate processes;
(iii) easy transition of companies operating under
the Companies Act, 1956, to the new framework as also from one type of company
to another. Freedom with regard to the
numbers and layers of subsidiary companies that a company may have, subject to
disclosures in respect of their relationship and transactions or dealings between
them;
(iv) a new entity in the form of One-Person Company (OPC)
while empowering Government to provide a simpler compliance regime for
small companies. Retention of the concept
of Producer Companies, while providing a more stringent regime for companies
with charitable objects to check misuse;
(v) application of the successful e-Governance initiative
of the Ministry of Corporate Affairs (MCA-21) to all the processes involved in
meeting compliance obligations. Company processes may also be carried out through
electronic mode;
(vi) speedy incorporation process, with detailed declarations
and disclosures about the promoters, directors etc., at the time of incorporation
itself. Every company director would be required to acquire a unique Director
Identification number (DIN);
(vii) relaxation
of restrictions limiting the number of partners in entities such as partnership
firms, banking companies etc., to a maximum 100, with no ceiling as to professional
associations regulated by Special Acts;
(viii) duties and liabilities
of the directors and every company to have at least one director resident in India. The
Bill also provides for independent directors to be appointed on the Boards of
such companies as may be prescribed, along with attributes determining independence.
The requirement to appoint independent directors, where
applicable, to listed public companies is a minimum of one-third
of the total number of directors. For other public companies, the requirement
and number may be prescribed through rules;
(ix) statutory
recognition to audit, remuneration and stakeholders relationship committees of
the Board and the Chief Executive Officer (CEO), the Chief Financial Officer (CFO)
and the Company Secretary to be as Key Managerial Personnel (KMP);
(x) companies not to be allowed to raise deposits
from the public except on the basis of permission available to them through
other Special Acts. The Bill prohibits
insider trading by company directors or Key Managerial Personnel and declares
it as an offence with criminal liability;
(xi) recognition of both accounting and auditing standards.
The role, rights and duties of the auditors defined so as to maintain integrity
and independence of the audit process. Consolidation
of financial statements of subsidiaries with those of holding companies is proposed
to be made mandatory;
(xii) a single forum
for approval of mergers and acquisitions along with a shorter merger process
for holding and wholly owned subsidiary companies or between two or more small
companies as well as recognition of cross border mergers. Concept of deemed
approval also provided in certain situations;
(xiii) a framework for enabling
fair valuations in companies for various purposes. Appointment of valuers
is proposed to be made by audit committee or in its absence by the Board of Directors;
(xiv) claim of an investor
over a dividend or a benefit from a security not claimed for more than a period
of seven years not to be extinguished, and Investor Education and Protection Fund
(IEPF) to be administered by a statutory authority;
(xv) shareholders associations or group of shareholders to be enabled
to take legal action in case of any fraudulent action on the part of company and
to take part in investor protection activities and ‘Class Action Suits’;
(xvi) a revised framework for regulation of insolvency, including
rehabilitation, liquidation and winding up of companies and the process to be
completed in a time bound manner;
(xvii) consolidation of fora for dealing
with rehabilitation of companies, their liquidation and winding up in the single
forum of National Company Law Tribunal with appeal to National Company Law Appellate
Tribunal with suitable transitional provisions. The nature of the Rehabilitation
and Revival Fund proposed in the Companies (Second Amendment) Act, 2002 to be
replaced by Rehabilitation and Insolvency Fund with voluntary contributions
linked to entitlements to draw money in a situation of insolvency;
(xviii) a more effective regime for inspections and investigations
of companies while laying down the maximum as well as minimum quantum of penalty
for each offence with suitable deterrence for repeated defaults.
Company is identified as a separate entity for imposition of monetary penalties
from the officers in default. In case of
fraudulent activities, provisions for recovery and disgorgement have been
included;
(xix) levy of additional fee in a non-discretionary manner for procedural
non-compliance, such as late filing of statutory documents, to be enabled through
rules. Defaults of procedural nature to be penalised
by levy of monetary penalties by the adjudicating officers not below the level
of Registrars. The appeals against orders of adjudicating officers to lie
with suitably designated higher authorities;
(xx) Special
Courts to deal with offences under the Bill. Company matters such as mergers and amalgamations,
reduction of capital, insolvency including rehabilitation, liquidations and winding
up are proposed to be dealt with by the National Company Law Tribunal.
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KKP
(Release ID :44114)