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Rajya Sabha on 8th August gave its nod to Companies Bill, 2013 which is the first major overhaul of Company law in more than 50 years. Now, India will have a brand new company’s law which is more effective and appropriate for this era and its challenges.

The law has been revised widely with several new provisions for protection of investors, better corporate governance and corporate social responsibility etc. It defines a number of new terms that have come into fashion in recent times. It is more precise and specific, with greater clarity of aim and purpose. When it will be formally notified, several things change for the Indian companies.

For instance private company can have maximum of 200 members, provision of class action suit has been introduced (which is key weapon for individual shareholders to take collective action against errant companies), better disclosure requirements in financial statements and disclosure of interests of directors, procedures has been streamlined relating to disclosure of transactions with parties related to directors & promoters, concept of one person company introduced, rotation of audit firm in every 10 years, spending on corporate social responsibility (CSR) will be mandated for companies of the certain classes, directors of a company will have to become more accountable, minority shareholders and depositors in a company can launch class action suits against managements to defend their interests, company can have maximum of 15 directors (more than 15 can be appointed if SR is passed), prohibition on forward dealings in securities of company by KMP, insider trading rules and restriction on non-cash transactions involving directors has been defined, E-voting has been recognized, etc..

Companies Bill, 2013 will bring drastic changes in the provisions relating to director. Some of the major changes in the provisions relating to director are as follows:

• Limit of maximum directors have increased to 15 from 12. More than 15 can also be added by passing special resolution without getting the approval of Central Government as earlier required.

• Prescribed category of companies to have at least one woman director.

• More disqualifications have been prescribed for the directors.

• Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year.

• A person cannot become Director in more than 20 companies including Private Companies and out of this 20, he cannot be a director of more than 10 public companies. Earlier a person can hold directorship in 15 companies excluding the directorship in a Private Company, Unlimited Company, Company licensed under section 25.

• Persons currently acting as directors will be allowed a transition period of one year from the commencement of the Act to comply with the provisions on maximum number of directorships.

• For the first time, duties of directors have been defined in the Bill. A director of a company shall :

o act in accordance with the articles of the company.

o act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.

o exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.

o not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.

o not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.

o not assign his office and any assignment so made shall be void.

• Concept of independent directors has been introduced for the first time in Company Law:

o All listed companies shall have at least one-third of the Board as independent directors. Such other class or classes of public companies as may be prescribed by the Central Government shall also be required to appoint independent directors.

o The independent director has been clearly defined in the Bill.

o Nominee director nominated by any financial institution, or in pursuance of any agreement, or appointed by any government to represent its shareholding shall not be deemed to be an independent director.

o An independent director shall not be entitled to any remuneration other than sitting fee, reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.

o Independent director shall not be entitled to any stock option.

o Only an independent director can be appointed as alternate director to an independent director.

o For the purpose of the calculation of the directors retiring by rotation, the independent directors shall be out of the ambit.

• Directors are also required to mandatorily forward their resignation along with detailed reasons for resignation to the Registrar within 30 days of resignation in prescribed manner.

• The notice for removal of Director can only be given by prescribed number of members or members holding prescribed number of shares or voting power.

There are several other changes with the coming of Company Bill, 2013. This is just a flash before a new beginning of the Company law journey. Now, the bill has gone for presidential assent. The draft rules on the companies act has been made public and the act comes into effect with notification by Ministry of Corporate Affairs. It can be concluded that it’s a fantastic beginning, but, as always, the proof of the pudding is in the eating. There is a need of effective implementation for the success.


Compiled by CA Kunal Jain and Kopal Agarwal. They can be approached for any queries and suggestions at cakunal@outlook. com, 9953441023.


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  1. Akhilesh Srivastava says:


  2. CA. Mohit Bhatnagar says:

    First of all I would like to appreciate ur effort to present relevant facts of the bill. Here you have mentioned the major areas relating to directors. As per above, the two important point is in question. Firsty, whether the concept of qourum is still valid after introduction of E-Voting.? Secondly, the relevance of sec 299 n 300 seem to b abolished as it have been part of duty of director regarding related parties matters.

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July 2024