Recently, the Companies Bill 2011 was tabled in Parliament by the Corporate Affairs Minister, Mr Veerappa Moily. The new bill is all set to replace the 55 year old Act. The much-anticipated Bill seeks to update the company law in line with the best global practices.
The new Bill was introduced to incorporate the changes that had been suggested by many stakeholders and members after the 2009 Bill had been presented before Parliament. While the existing Act has more than 700 sections, the new Bill has been presented with just 470 clauses.
Apart from reducing the number of sections drastically, the Bill also brings in changes like a ‘one man company’ (which was crucial to bring the Indian law up to steam with developments in corporate law).
Highlights of The Companies Bill, 2011 are:
- Bringing in the concept of a ‘One Person Company’(OPC limited) to India. These companies have been given the option to dispense with the requirement of holding an AGM.
- A more extensive range of activities will now be possible online. E-Governance proposed for various company processes like maintenance and inspection of documents in electronic form, option of keeping books of accounts in electronic form, financial statements to be placed on company’s website, holding of board meetings through video conferencing/other electronic mode; voting through electronic means.
- All listed companies are required to appoint independent directors.
- The Bill proposes rotation of audit firms. The audit firms might have two fixed terms of five years each with five year cooling off period. The Bill also proposes to rotate audit partner every year. It might also say that audits should be conducted by more than one auditor.
- The changes in provisions relating to ‘Independent Directors’. They are not entitled to get stock options.
- At least one woman director being made mandatory in the prescribed class or classes of companies.
- Participation of directors at Board Meetings has been permitted through video-conferencing or other audio visual means.
- For the first time duties of directors have been defined in the Bill.
- Directors and the key managerial personnel of a company are prohibited from forward dealings in securities of the company.
- A member may exercise his right to vote by the electronic means.
- The Secretarial Standards has been introduced and provided statutory recognition. It is the beginning of a new era where non financial standards have been given importance and statutory recognition besides Financial Standards.
- Provisions regarding Secretarial Audit has been included in the Bill, this enhances the role of Company Secretaries.
- The concept of ‘cost auditing standards’ being mandated.
- New clause has been introduced with respect to prohibition of insider trading of securities. The definition of price sensitive information has also been included.
- Two percent of average net profits of the previous three years will have to be spent on corporate social responsibility activities with disclosure norms giving reasons on failure of implementation.
- Every contract or arrangement entered into with a related party shall be referred to in the Board’s Report along with the justification for entering into such contract or arrangement.
- Substantial judicial powers will be given to the National Company Law Tribunal.
- Increase in the powers of the executive to legislate through notifications.
- The entire rehabilitation and liquidation process has been made time bound.
- Changes relating to managerial remuneration has been proposed.
- Concept of ‘dormant companies’ being introduced. This would allow a company to remain on the Register of Companies with minimal compliance requirements even without carrying on any operations.