Companies Act

The Rajya Sabha approved a Bill to amend the Companies Act in May, 2015 with an aim of promoting ease of doing business in the country. The changes were occasioned on account of at least three stated reasons : (i) for the ease of doing business; (ii) to meet corporate demand and address problems faced by stakeholders; and (iii) removal of inadvertent errors or discrepancies. As many as 16 amendments have been made to the Companies Act of 2013 which mainly deal with winding up of companies, board resolutions, bail provisions and utilisation of unclaimed dividends to bring the law in tune with the global standards. Contending that 16 amendments were not enough to cover everything, Finance Minister Arun Jaitley said that “a broad-based committee will continue to go into this question for the next few months as to where the shoe pinches, and this may not be the last amendments which we are bringing in.” The expert committee comprising representatives of bodies of company secretaries, chartered accountants, industry chambers and officials will look into the discrepancies and suggest changes, he said.

At an overall level, the Bill seeks to undo some of the rigidities of the 2013 Act. It has been found that while the 2013 Act enhances corporate governance and compliance requirements in the interests of the investors, it also imposes onerous obligations on companies thereby increasing the costs of doing business. This apparently does not augur well with the Government’s move towards enhancing the ease of doing business with a view to attracting higher levels of foreign investment especially given the express thrust of the “Make in India” policy. Moreover, in order to improve India’s ranking in the World Bank Doing Business report, measures must be seen to be taken. These drivers seem to be behind the Bill.

The amendments have been designed to address some issues raised by stakeholders. Among the major concerns of stakeholders were protecting confidentiality of board resolutions, as well as the provision of auditors being required to report suspected frauds at the companies audited by them. The provision on the public scrutiny of board resolutions, is a practice which is not followed anywhere in the world, and has been amended in the new Bill. A company deciding in its board on its next model, a new product trademark or the funding mechanism would not like such matters to be known to competitors, and thus this is a welcome change.

Towards meeting a “corporate demand”, the relevant amendment now prohibits public inspection of board resolutions filed in the registry. Under the new norms, the paid-up capital criteria has been scrapped while threshold limits for various transactions for getting shareholders’ nod has now been stipulated. Another amendment approves prescribing specific punishment for deposits accepted, a condition that was left out in the act inadvertently.

Stakeholders were also concerned that stringent regulations for related party transactions, or those transactions between the company and another in which a board member or members are interested, could hurt routine business activity. The amendment now exempts corporates from the need to get shareholders’ nod in the case of related party transactions valued lower than Rs.100 crore or 10 percent of net worth. Under the old system, shareholders’ permission through a special resolution was required in case of related party transactions for all firms with a paid up capital of Rs.10 crore or more.

Another amendment exempts related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders.

The amendment bill, is expected to go a long way in creating an enabling regulatory regime necessary for promoting economic growth.

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