Parliament Passes the Historic Companies Bill 2012            

The Parliament has passed the historic Companies Bill 2012, moved by Shri Sachin Pilot, Minister of Corporate Affairs. The Bill was passed by the Rajya Sabha here today which had already been passed by the Lok Sabha many months ago (in December 2012). Shri Pilot has termed it as a historic day for the country as it will usher in a new era in the Corporate Governance.

The new Companies Bill, on its enactment, will allow the country to have a modern legislation for growth and regulation of corporate sector in India. The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been under consideration for quite long for comprehensive revision in view of the changing economic and commercial environment nationally as well as internationally. The new law will facilitate business-friendly corporate regulation, improve corporate governance norms, enhance accountability on the part of corporates/ auditors, raise levels of transparency and protect interests of investors, particularly small investors.

The salient features of the new Companies law are: Business friendly corporate Regulation/ pro-business initiatives; e-Governance Initiatives; Good Corporate Governance and CSR; Enhanced Disclosure norms; Enhanced accountability of Management; Stricter enforcement; Audit accountability; Protection for minority shareholders; Investor protection and activism; Better framework for insolvency regulation; and Institutional structure. Other important features of the Companies Bill, 2012 are:

(i)   Enhanced Accountability on the part of Companies:

(a) In addition to the concept of Independent Directors (IDs) introduced, the provisions in respect of their tenure and liability etc have been provided. Code for IDs provided in a new Schedule to the Bill. Databank for IDs proposed to be maintained by a body/institute notified by the Central Government to facilitate appointment of IDs. (Clauses 149(10); 149(11); 149(7); 150);

(b) Corporate Social Responsibility (CSR) Committee of the Board proposed in addition to other Committees of the Board viz Audit Committee, Nomination and Remuneration and Stakeholders Relationship Committee. These committees shall have IDs/non executive directors to bring more independence in Board functioning and for protection of interests of minority shareholders. (Clauses 135, 177 and 178);

(c)  Provisions in respect of vigil mechanism (whistle blowing) proposed to enable a company to evolve a process to encourage ethical corporate behavior, while rewarding employees for their integrity and for providing valuable information to the management on deviant practices. (Clause 177 (9) and 177 (10));

(d)   New provisions suggested for allowing re-opening of accounts in certain cases with due safeguards. (Clause 130 and 131).

(ii)     Audit Accountability:

(a) Rotation of auditors and audit firms being provided for. (Clause 139 (2));

(b) Stricter and more accountable role for auditor being retained. Provisions relating to prohibiting auditor from performing non-audit services revised to ensure independence and accountability of auditor.  (Clause 141 and Clause 144);

(c) National Advisory Committee on Accounting and Auditing Standards (NACAAS) proposed to be renamed as National Financial Reporting Authority (NFRA) with a mandate to ensure monitoring and compliance of accounting and auditing standards and to oversee quality of service of professionals associated with compliance.

(iii) Facilitating Mergers/ Acquisitions:

Simplified procedure (through confirmation by the  Central Government), laid down for compromise or arrangement including for merger or amalgamation of holding companies  and wholly owned subsidiary (ies), between two or more small companies and for such other class or classes of companies as may be prescribed. This would result into faster decisions on approvals for mergers and amalgamations resulting effective restructuring in companies and growth in the economy. For other companies, such matters would be approved by Tribunal. (Clause 233 and 232).

(iv)   Investor Protection:

(a) Acceptance of deposits from public subject to a more stringent regime. (Clause 76);

(b) Provisions for Class Action Suits revised to provide minimum number of persons who may apply for such suits. Safeguards against misuse of these provisions also being included. (Clause 245).

(v)   National Company Law Tribunal (Tribunal): Keeping in view the Supreme Court’s Judgment, on the 11th May, 2010 on the composition and constitution of the Tribunal, modifications relating to qualification and experience etc of the members of the Tribunal have been made. Appeals from Tribunal shall lie to National Company Law Appellate Tribunal. (Chapter XXVII).

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  1. CA. Kalyan says:

    Thanks Sandeep Kanoiji for adding the much needed print button on your webpages. I have waited long for this request of mine which i had made to you by email on 9/3/12. Thanks a lot indeed.

  2. Rahul Nadkarni says:

    To Kaushik,
    If anything about recent reaction of ICAI-Accounts President relating to New Companies bill and NFRA indicate they will fight tooth and nail, indulge back door dirty politics which is their forte and go to any extent to protect their supremacy and monopoly in Accounts and audit. After President Pranab Mukherjee (here worth mention that ICAI-President did have a meeting with President Mukherjee few days back)accent is obtained, at the level of framing the rule they will suggest or rather influence things so that the very spirit of New companies bill or forming of NFRA get diluted. The status quo will remain same. Just wait and watch. Election atmosphere is getting warming up. ICAI-Accounts have solid influence in BJP in comparison to Congress. The topic of Black money in coming days will get louder. So you can guess the outcome of these legislative instruments at last. God save this country..

  3. kaushik says:

    Institute of Chartered Accountant of India is now a mere training institute after NFRA….end of a decade long supremacy and befeits enjoyed over last 50 yrs…

  4. sudarshana says:

    New Companies Bil 2012 will definitely help the Indian Economy for further growth and regulation of Corporate Sector….
    And Overall development of the companies.

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