New Provisions introduced in Companies Bill, 2011

TG Team 29 Jun 2012 1,977 Views 0 comment Print Company Law | Articles

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While incorporating the several recommendations of the Standing Committee on Finance, as also some of the suggestions/ representations received subsequent to submission of report of Committee, the provisions of the Companies Bill, 2009 were revised and a fresh Bill was formulated as Companies Bill, 2011 and introduced in Lok Sabha on 26.06.2012. A statement indicating the changes made and the new provisions introduced has been submitted by the Ministry as below : –

SN	Clause No. in the Companies Bill, 2009	Clause No. in the Companies Bill, 2011	Issue	Remarks
1	2(1)(zzp)	2(68)	Definition of private company – Maximum number of members to be increased from 50 to 200.	To allow setting up of private companies with more number of members.
2	—	New Clause 29	Dematerialization of securities : – Mandatory for listed and such class of companies as may be prescribed; – Optional for other companies	Change is of procedural nature and seeks to synchronize the provisions of the Bill with the provisions of Depositories Act and SEBI Act. (Depositories Act enables dematerialization for all kinds of securities and SEBI Regulations make it mandatory for all public offers to be in dematerialized form.) Would result in good corporate governance since frauds related to loss of/duplicate securities certificates would not happen. Further it would also be more convenient for investors since there would not be need to exercise safeguards relating to physical share certificates.
3	24(2)	42	Modifications in clause relating to private placement.	To prevent misuse of existing provisions on the matter, to protect interest of investors and to synchronize the provisions with SEBI regulations / norms.
4	52	New sub- clause (2) of clause 58.	While making securities of public companies to be freely transferable, shareholders contracts/ agreements also made enforceable.	To recognize Shareholders Agreements/ Contracts as per commercial practices.
5	112	125	Transfer of securities in respect of unclaimed dividend beyond 7 years to be also transferred to IEPF	It was felt that since dividend for relevant securities has been unclaimed for seven years or more, the underlying securities may be mis-used by vested parties and these should also be allowed to be transferred to IEPF. The rightful claimants can claim them back from IEPF through provisions in rules.
6	—-	New Clauses 130 and 131	Re-opening of accounts by companies after obtaining approval of Tribunal.	The change proposes to provide procedural requirement in respect of revision in accounts in certain cases. The present law is silent in respect of re-opening or re-casting of accounts. In certain cases, particularly, in cases relating to fraud, there may be need to re‑open/ re-cast accounts to reflect true and fair accounts. In case of Satyam case, such recasting was ordered by Court. The provisions in the Bill mandate such re-opening on the order of Court or Tribunal. In other cases the re-opening is being permitted, through order of Tribunal, with adequate safeguards.
7	—-	New Clause 135	Corporate Social Responsibility (CSR)	CSR provisions have been included in accordance with recommendations made by HRn‘IEE Committee. Additionally, it is being proposed that companies covered under such provisions shall constitute a CSR Committee of Board and the Board of such a company shall be required to make every endeavour to spend 2% amount as provided in clause. An indicative Schedule of CSR activities has also been appended to the Bill. The Schedule empowers the Central Government to prescribe new CSR activities by amending the Schedule as and when such a need arises.
8	123	139	Procedure with regard to appointment of auditors:- Instead of year to year basis it can be appointment by members in general meeting for five years.	The procedure has been proposed to be modified in respect of appointment of auditors. It is proposed that shareholders may have the power to appoint auditors for straight five years, instead of on year to year basis. This would ensure that promoter/company/management does not change auditor who is doing good job pre‑ prematurely. Auditor‘s early resignation and removal have been made possible. Approval of Central Government provided in case an auditor is removed before his tenure.
9	126	143(12) to 143(1 5)	Provisions proposed for statutory duties on Auditors (and other professionals) to report fraud to Central Government	Keeping in view the Satyam experience it was felt that such auditors/professionals should be under obligation to report fraud to Central Government.
10	132	New 149(1)2nd proviso	Woman Director	Appointment of at least one Woman director has been proposed to be mandated in such class of companies as may be prescribed. The class shall be prescribed through rules. This is likely to be in line with the policy of the Government for encouraging more and more women participation in decision making at various levels.
11	—	New 151	Small Shareholders‘ elected Director -Listed companies allowed to have one Director to be elected by small/minority shareholders.	Companies Act, 1956 has this provision but Companies Bill, 2009 did not include these provisions. These have been proposed to be included in the new Bill.
2	204	New sub- clause (10) to clause 233	A transferee (holding) company not to hold shares in its own name consequent upon merger of a subsidiary with a holding company.	Necessary for good corporate governance and to prevent market manipulation by companies by indulging in trading in their own shares.
13	204/336	233/361	Enhanced coverage/scope for summary merger and summary liquidation	This has been proposed to ensure that the Bill is flexible and takes care of future anticipated problems for the corporate sector.
14	216	245	Class action to be allowed on the applications of members or depositors only.	It has been felt that since creditors can enforce their claims through contracts/ agreements with borrower companies, they may not be given statutory right for class action. On the other hand since depositors do not have any contractual rights and are mainly of unsecured nature, they are being proposed to be empowered with right to file class action petitions before Tribunal.
15	301	326(1) (proviso) and 326(2)	Wages/ Salaries payable to workmen for a period of 2 years protected in case of winding up of the company.	Such payments have been proposed to have overriding effect over all other claims, including those of secured creditors. This is being considered essential to protect interests of workmen in case of winding up of companies.
16	—	New Clauses 366 read with 374	Enabling provisions for allowing conversion of various entities (like societies, cooperative societies,firms and LLPs) into companies.	Under the existing Act, mainly partnership firms are being allowed to be converted into companies subject to certain safeguards and the satisfaction of the Registrar of Companies. Keeping in view the fact that LLP Act, 2008 has been in force since 2009 and various other entities like societies, cooperative societies may also have need commercial feedom for conversion into corporate form, the enabling provisions (on thelines of provisions in the existing Act) have been proposed for conversion of such entities into companies as well, subject to adequate safeguards.
17	370(3) 373(2)	409(3)(a) 412(2)(e)	NCLT provisions:- ICLS officers of JS rank proposed to become Technical Members in certain cases Selection Committee to also have Secretary, D/o Financial Services as Member	The provisions in respect of NCLT and NCLAT have been revised in view of Order of Hon‘ble Supreme Court in the NCLT matter. Minor variation on these two issues have been proposed to ensure that (i)genuine experienced candidates (i.e. ICLS/ILS Officers having 15 years experience with at least 3 years in the rank of JS or above) are allowed to become Technical Members. (ii) Secretary, DFS has been proposed as Member in Selection Committee to ensure that candidates with adequate experience with reference to SICA cases are selected.
18	—-	New Clause 442	Conciliation and Mediation Panel	To enable voluntary arbitration by parties and to expedite decision on applications/petitions filed under new Bill for approval.
19	357, 367 (2), 421	462	Exemption from provisions of the new legislation.	Presently, the Act/ Companies Bill allows Central Government to modify provisions of the law for class of companies e.g. Government Companies, Producer Companies, Nidhi Companies and in respect of e-governance initiatives.It is proposed to empower Central Government to have power, in public interest, to exempt/modify provisions of the Act for a class or classes of companies. Draft notification shall be laid in draft form in both the Houses of Parliament and shall be effective only after both the Houses approve it.
20	—	New Clause 463	Power of Court to grant relief in certain cases.	Section 633 of existing Companies Act, 1956 was not included in the Companies Bill, 2009 and is now proposed to be included.
21	424	466	Provisions regarding continuation of President/ Members of CLB with Tribunal	Existing Members/ Employees of CLB to be retained in NCLT if they qualify norms under new Bill. This has been proposed to ensure continuity in the functioning of the body.
22	174(5)	196(4)	Modification to be made in the requirement for passing of Special resolution before appointment of managing director, whole-time director or manager.	The clause 196(4) of the Companies Bill, 2011 presently provides for passing of special resolution, on the lines of similar provisions provided in clause 174(5) of the Companies Bill, 2009. However in view of the recommendation made by Hon‘ble Committee to review the provisions in respect of appointment/remuneration of managerial personnel keeping in view the provisions of Companies Act, 1956 it is felt that requirement of passing of special resolution may be modified to passing of ordinary resolution as provided in the existing Act