Dr. Sanjiv Agarwal

Very soon, companies in India shall be governed by a new piece of legislation to be known as Companies Act, 2013 which shall replace the longest legislation of the country, the Companies Act, 1956 which is now over 56 years old.

The Lok Sabha passed the same last week on 18th December, 2012. However, it could not be passed in Rajya Sabha as it was adjourned.

The new law primarily aims to strengthen the corporate governance in companies and provides for tougher norms for companies and their auditors. The law will be investor friendly and make companies more concerned towards societal needs.

New Company Law

  • Goods corporate governance
  • promotes sustainable growth
  • makes companies socially responsible
  • encourage voluntary social welfare
  • workmen friendly
  • ceiling on auditors to audit  maximum 20 companies
  • auditors not to render allied services
  • auditors criminal liability
  • compulsory rotation of auditors
  • stricter anti –corporate fraud norms
  • any one person can form company
  • private company to have upto 200 member (presently 50)
  • uniform financial year
  • voting by postal ballots

 The new company law is organized in 29 chapters, 470 clauses and 7 schedules as against over 658 clauses and 15 schedules earlier.

The new law makes it mandatory for companies that have reported profits of Rs. 5 crores or more in previous three years to spend atleast 2 percent of their average net profit on social responsibilities related activities. Non compliance in such as case would attract penalties. There is a good news for employees too. Companies desirous of winding up their operations will have to pay two year’s salary to employees as compensation.

The law caps the maximum number of companies a chartered accountant can audit at 20. Further, rotation of audit partner and audit firm will become mandatory after 5 and 10 years respectively. Auditors will not be able to provide certain other services to the company where they are auditors. Auditors would also be liable for criminal liabilities.

In future, learning from Satyam fraud case, serious frauds investigation office (SFIO) will have more teeth to investigate and tackle corporate frauds.

The law in ultimate analysis is a modern law to meet changing business environment domestically as well as globally and is futuristic. It would also ensure shareholder’s democracy and make corporates more accountable and responsible.

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January 2021