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Companies Act: Panel for sweeping changes

Proposals address concerns raised by corporates after the 2013 overhaul of the Act by UPA II

By: ENS Economic Bureau | New Delhi |
February 2, 2016 2:26:46 am

A government-appointed panel on Monday suggested sweeping changes to the Companies Act, 2013, making it easier for companies to raise funds and reward senior management and ensuring that steps to enhance shareholder democracy don’t cripple the functioning of firms and the businesses they run. The committee, chaired by the corporate affairs secretary, proposed easing regulations for shareholders’ approval to the managerial remuneration and removal of the restriction on layers of subsidiaries and investment companies, moves that could address concerns raised by corporate groups after the 2013 overhaul of the Act by the UPA government.

After the Modi government took over, several of its senior functionaries including finance minister Arun Jaitley had said that amended Act was fraught with many drafting errors and contained some impractical provisions that would undermine its plan to make it easier to do business.

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Among the major recommendations of the panel are a change in the definition of associate company and subsidiary company to ensure that only “equity share capital” is the basis for deciding holding-subsidiary relationship, instead of “both equity and preference share capital”. It also proposed simplification of the private placement process and doing away with separate offer letter and pitched for easing of the process of incorporation and reducing the number of filings to the Registrar of Companies (RoC). According to the committee, which also comprises representatives from the Reserve Bank of India, the Securities and Exchange Board of India and the Institute of Chartered Accountants of India, the provisions relating to forward dealing and insider trading should be deleted from the Companies Act as listed companies are covered under Sebi regulations.

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The ministry of corporate affairs has launched a public consultation process on the suggested changes and has invited comments from all stakeholders concerned till February 15 in this regard.

The ministry had constituted the Companies Law Committee in June 2015 for examining and making recommendations on the issues arising out of implementation of the Companies Act, 2013.

“An unrestricted objects clause (needs) to be allowed in the memorandum of association dispensing with detailed listing of objects,” the panel suggested while suggesting self-declarations to replace affidavits from subscribers to memorandum and first directors.

Moreover, it wants changes in various forms. It also wants companies being allowed to give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement.

(With inputs from Financial Express & PTI)

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First published on: 02-02-2016 at 02:26:46 am

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