Press release on Amendment to the Companies Act, Competition Act, LLP, Vanishing Companies, SFIO, Corporate Governance, Investor Education and Protection
Friday February 05, 2010 : The Ministry of Company Affairs is now functioning under a Cabinet Minister, after its up-gradation with effect from January 29, 2006. The Ministry is continuing its initiatives to meet the expectations of the corporate sector and its stakeholders in the changing national and global business environment. The Ministry is constantly working towards improvement in the legislative framework and administrative set up to enable easy incorporation and exit of the companies, convenient compliance of regulations with transparency and accountability in corporate governance.
Comprehensive Amendment to the Companies Act
An Expert Committee, headed by Dr.JJ Irani, has been constituted to evolve a Simplified Compact Law, which takes into account the changes in national and international business environment, enables adoption of internationally accepted best practices and provides adequate flexibility to respond to the future changes. Based on the recommendations of the Expert Committee, and after an extensive consultative process, the shape of the new Company Law has now emerged. The Ministry is in the process of drafting the legislation.
Implementation of MCA21 e-Governance Project
An ambitious MCA 21 Project as a Mission Mode Project under the National e-Governance Plan has been drawn. MCA 21 envisages electronic filing of compliance related documents in an inter-active paperless mode, through a dedicated portal on the Internet. The Project will facilitate the companies in their compliance of the provisions of the Companies Act, and also empower the stakeholders by providing them access to the corporate data in a convenient, user-friendly mode. The Project contract, under Build, Own, Operate and Transfer (BOOT) model, was signed with Tata Consultancy Services on March 1, 2005, and the first pilot launch of MCA 21 took place at Coimbatore on February 18, 2006. Hon’ble Prime Minister of India launched the Project at Delhi on March 18, 2006, and 12 out of 20 Registrar Of Companies (ROC) locations have been covered so far under the project.
Under Phase-II of the e-Governance Project, the Government plans to computerise the domain of Official Liquidators, work for which has already been initiated. With the completion of Phase-II of the e-Governance Project along with other steps being taken up, the process of liquidation of companies, which now generally takes over 10 years, would get significantly speeded up.
Reforms relating to the Professional Institutes – ICAI, ICSI and ICWAI
In the light of the growing contribution of the Services Sector to the national economy as well as the global opportunities this sector offers today, it was felt necessary to equip the company secretaries, chartered accountants and cost and works accountants, who cater to the needs of the corporate sector, to face competition from global players in the international market. Realising the need to amend the enactments governing these three professions with the objective of providing more autonomy to these institutes while making them more accountable, the Government introduced Amendment Bills in Parliament in the winter session of 2005, which were passed by both the Houses. After getting the Presidential assent, the amendments have now become part of the relevant Acts. Some of the major changes introduced through these amendments are:
* Streamlining the disciplinary mechanism in the institutes, including creation of an Appellate Authority to hear appeals in order to bring better accountability, transparency and credibility of the professions
* Provision of a Quality Review Board to review the quality of services provided by the professionals and making recommendations for improvement
* Enabling provisions to form multi-disciplinary firms and offer multi-professional services in a competitive and commercial manner
Amendments to the Competition Act, 2002
India has responded to the current world trend of globalisation by opening its economy, removing controls and moving to a more liberal regime. As a natural corollary, it was felt that the Indian market should be geared to face competition, from within the country and outside. While competition in the market has significant benefits increased economic efficiency and consumer welfare, there is need to guard against market failures. The common market failures arise out of anti-competitive agreements, like cartel formation; abuse of dominant position like predatory pricing; vertical restraints like exclusive supply or distribution arrangements; and mergers to exercise monopoly power. With a view to prohibiting and regulating such action, the Government enacted the Competition Act, 2002, and the Competition Commission of India (CCI) was set-up. This would ultimately replace the Monopolies and Restrictive Trade Practices Commission (MRTPC).
The Competition Act, 2002, was challenged in the Supreme Court by way of a Public Interest Litigation (PIL) Petition. In the light of the judgement of the Supreme Court, the Government had introduced an Amendment Bill to the existing Competition Act in Parliament in the Budget Session of 2006. Pending the amendments, the CCI is actively engaged in the advocacy and capacity building functions.
Limited Liability Partnership Law
In view of the increasing role of services sector in the national economy, the wide range of disciplines in which such services can be offered and the growing number of professionals, a need has been recognised for a new corporate form, which will enable professional expertise to organise and provide a range of services to the corporate sector in a comprehensive and efficient manner.
In India, businesses mainly operate as companies, sole proprietorships and partnerships. Each of these is subject to different regulatory and tax regimes reflecting their organisation and ownership. Introducing Limited Liability Partnerships (LLPs), as a new business structure, would fill the gap between business firms such as sole proprietorship and partnership, which are generally unregulated and Limited Liability Companies which are governed by the Companies Act, 1956. In addition to an alternative business structure, LLPs would also foster the growth of the services sector. The regime of limited liability partnership will provide a platform to small and medium enterprises and professional firms of Company Secretaries, Chartered Accountants, Advocates etc. to conduct their business/profession efficiently which would in turn increase their global competitiveness.
As a first step in such consultative process, the Ministry placed a Concept Paper on LLP Law in the legislative model, along with explanatory notes on chapters, for viewing on the electronic media so that all interested may not only express their opinions on the concepts involved but also suggest formulations, by December 31, 2005, for the consideration of the Ministry on various aspects of LLP Law. Comments and suggestions received from different quarters are being examined. The Bill in this regard is being drafted.
Measures against Vanishing Companies
The Government is continuing its efforts to bring to book the companies, which raised money from the capital market and subsequently vanished. With the efforts of the Ministry, out of 229 companies identified as vanishing companies, 115 companies have been traced and FIRs have already been lodged in 100 cases out of these. It is expected that such concerted action would deter similar activities by unscrupulous operators in future.
Investor Education and Protection
Investor Protection has been a focus area and a number of measures have been taken in this direction. The Ministry has provided a facility to the investor to lodge their grievances on the Ministry’s Website and such grievances are taken up for redressal through the Office of Registrar of Companies. In case of companies, where a large number of investors have filed complaints, the Ministry has been getting inspections conducted u/s 209 of the Companies Act and taking appropriate punitive action against the defaulting companies.
At the same time, measures have been taken to create awareness amongst the investors so that they can protect their interests while investing in specific instruments of the security market. The Investor Education and Protection Fund set up by the Ministry, has been conducting awareness programme through media campaigns and training sessions all over the country. To caution the investors against the activities of companies involved in economic offence, the Ministry has also launched a Website www.watchoutinvestor.com, which is the National Registry of Economic defaulters.
One of the main objectives has been to promote efficient, transparent and accountable form of corporate governance in the Indian corporate sector. To achieve this objective, while a number of initiatives on e-Governance and legislative fronts, it has also set up the National Foundation for Corporate Governance to provide a platform for deliberations on issues relating to good corporate governance and to sensitise corporate leaders on the importance of good corporate governance, self-regulation and directorial responsibilities. A website of the Foundation has been launched, which is expected to serve as a medium for exchange of views between various stakeholders and help in formulation of policies for better corporate governance.
National Accounting Standards
The Standards of Accounting, which are required to be followed by the companies for preparation of their accounts, have been notified from time to time by the Institute of Chartered Accountants of India. In order to bring the standards fully in line with the international best practices, the Ministry had asked the National Advisory Committee on Accounting Standards (NACAS) to examine the existing standards and suggest suitable modifications. It was also asked to look into possible difficulties, which certain class of companies, especially the small and medium enterprises, may face in following the standards. The NACAS have submitted their recommendations, which are being examined.
Serious Fraud Investigation Office
The Serious Fraud Investigation Office was set up in July 2003, under the Ministry. This Office has completed investigations in12 out 23 cases referred by the Central Government u/s 235/237 of the Companies Act 1956. These cases involved serious violations of the provisions of the Companies Act and a number of other related commercial statutes. Based on the investigation reports of the SFIO, the Government has ordered legal action in 9 cases.
Streamlining the Prosecution Mechanism under the Companies Act, 1956 (Vaish Committee)
Over 50,000 prosecution cases, arising out of administration of the Companies Act, are pending in various courts. Many of these cases are on account of violation of technical nature. While these cases are pending on an average for 5 to 7 years, the penalty at the end of the proceeding averages to Rs 2,000. In order to tackle this issue, an Expert Group was constituted in May 2005, under the Chairmanship of Shri OP Vaish, Senior Advocate, to examine issues relating to streamlining the prosecution mechanism under the Companies Act, 1956. The Group submitted its report on in October 2005. The recommendations of the Expert Group have been examined and are under implementation.