The Minister for Corporate Affairs, Mr Salman Khurshid, Yesterday introduced the Companies Bill, 2009 in the Lok Sabha. The main objectives of the Companies Bill, 2009 are as follows –
(a) to revise and modify the Companies Act, 1956 in consonance with the changes in the national and international economy;
(b) to bring about compactness by deleting the provisions that had become redundant over time and by regrouping the scattered provisions relating to specific subjects;
(c) to re-write various provisions of the Act to enable easy interpretation; and
(d) to delink the procedural aspects from the substantive law and provide greater flexibility in rule making to enable adaptation to the changing economic and technical environment.
Earlier last year Companies Bill, 2008 was introduced in the Lok Sabha on 23rd October, 2008. Due to dissolution of the 14th Lok Sabha, the Companies Bill, 2008 lapsed. As the provisions of the Companies Bill, 2008, are broadly considered to be suitable for addressing various contemporary issues relating to corporate governance, including those which have been recently noticed during the investigation into the affairs of some of the companies.
In view of above, the Government decided to re-introduce the Companies Bill, 2008 as the Companies Bill, 2009, without any change except for the Bill year and the Republic year. The Companies Bill, 2009, inter-alia, provides for:
(i) The basic principles for all aspects of internal governance of corporate entities and a framework for their regulation, irrespective of their area of operation, from incorporation to liquidation and winding up, in a single, comprehensive, legal framework administered by the Central Government. In doing so, the Bill also harmonizes the Company law framework with the imperative of specialized sectoral regulation.
(ii) Articulation of shareholders democracy with protection of the rights of minority stakeholders, responsible self-regulation with disclosures and accountability, substitution of government control over internal corporate processes and decisions by shareholder control. It also provides for shares with differential voting rights to be done away with and valuation of non-cash considerations for allotment of shares through independent valuers.
(iii) Easy transition of companies operating under the Companies Act, 1956, to the new framework as also from one type of company to another.
(iv) A new entity in the form of One-Person Company (OPC) while empowering Government to provide a simpler compliance regime for small companies. Retains the concept of Producer Companies, while providing a more stringent regime for not-for–profit companies to check misuse. No restriction proposed on the number of subsidiary companies that a company may have, subject to disclosure in respect of their relationship and transactions/ dealings between them.
(v) Application of the successful e-Governance initiative of the Ministry of Corporate Affairs (MCA-21) to all the processes involved in meeting compliance obligations. Company processes, also to be enabled to be carried out through electronic mode. The proposed e-Governance regime is intended to provide for ease of operation for filing and access to corporate data over the internet to all stakeholders, on round the clock basis. (vi) Speedy incorporation process, with detailed declarations/ disclosures about the promoters, directors etc. at the time of incorporation itself. Every company director would be required to acquire a unique Directors identification number.
(vii) Facilitates joint ventures and relaxes restrictions limiting the number of partners in entities such as partnership firms, banking companies etc. to a maximum 100 with no ceiling as to professions regulated by Special Acts.
(viii) Duties and liabilities of the directors and for every company to have at least one director resident in India. The Bill also provides for independent directors to be appointed on the Boards of such companies as may be prescribed, along with attributes determining independence. The requirement to appoint independent directors, where applicable, is a minimum of 33% of the total number of directors.
(ix) Statutory recognition to audit, remuneration and stakeholders grievances committees of the Board and recognizes the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the Company Secretary as Key Managerial Personnel (KMP).
(x) Companies not to be allowed to raise deposits from the public except on the basis of permission available to them through other Special Acts. The Bill recognizes insider trading by company directors/KMPs as an offence with criminal liability.
(xi) Recognition of both accounting and auditing standards. The role, rights and
duties of the auditors defined as to maintain integrity and independence of the audit process. Consolidation of financial statements of subsidiaries with those of holding companies is proposed to be made mandatory.
(xii) A single forum for approval of mergers and acquisitions, along with concept of deemed approval in certain situations.
(xiii) A separate framework for enabling fair valuations in companies for various purposes. Appointment of valuers is proposed to be made by audit committees.
(xiv) Claim of an investor over a dividend or a security not claimed for more than a period of seven years not being extinguished, and Investor Education and Protection Fund (IEPF) to be administered by a statutory Authority.
(xv) Shareholders Associations/ Group of Shareholders to be enabled to take legal action in case of any fraudulent action on the part of company and to take part in investor protection activities and `Class Action Suits’.
(xvi) A revised framework for regulation of insolvency, including rehabilitation, winding up and liquidation of companies with the process to be completed in a time bound manner. Incorporates international best practices based on the models suggested by the United Nations Commission on International Trade Law (UNCITRAL).
(xvii) Consolidation of fora for dealing with rehabilitation of companies, their liquidation and winding up in the single forum of National Company Law Tribunal with appeal to National Company Law Appellate Tribunal. The nature of the Rehabilitation and Revival Fund proposed in the Companies (Second Amendment) Act, 2002 to be replaced by Insolvency Fund with voluntary contributions linked to entitlements to draw money in a situation of insolvency.
(xviii) A more effective regime for inspections and investigations of companies while laying down the maximum as well as minimum quantum of penalty for each offence with suitable deterrence for repeat offences. Company is identified as a separate entity for imposition of monetary penalties from the officers in default. In case of fraudulent activities/actions, provisions for recovery and disgorgement have been included.
(xix) Levy of additional fee in a non-discretionary manner for procedural offences, such as late filing of statutory documents, to be enabled through rules. Defaults of procedural nature to be penalized by levy of monetary penalties by the Registrars of Companies. The appeals against such orders of Registrars of Companies to lie with suitably designated higher authorities.
(xx) Special Courts to deal with offences under the Bill. Company matters such as mergers and amalgamations, reduction of capital, insolvency including rehabilitation, liquidations and winding up are proposed to be addressed by the National Company Law Tribunal/ National Company Law Appellate Tribunal.
The Companies Bill, 2009, on its enactment, would 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. In view of various reformatory and contemporary provisions proposed in the Companies Bill, 2009 together with omission of existing unwanted and obsolete compliance requirements, the companies in the country would be able to comply with the requirements of the proposed Companies Act in a better and more effective manner.